Should You Brace For Cuts In Fixed Deposit Interest Rates?

  Author: Naveen Kumar

As you come across news reports of banks lowering their interest rates for loans, you wonder of the fate of the interest rate for bank fixed deposits. It is inevitable they would be reduced in the days to come since banks borrow from depositors to lend their money. Of course, this would be a source of worry for those who rely on income from fixed deposits or those who invest in them for any future need. It is worthwhile mentioning here that the government has announced a saving scheme which offers an annual interest rate for 8 per cent for 10 years for deposits upto Rs 7.5 lakh. The depositors will receive monthly interest. At the same time, others will have to evaluate their options quickly. Among them are small savings investments offering higher rates though that is also bound to get revised eventually.

 Small savings alternatives For the senior citizens, the existing Senior Citizens Saving Scheme still looks attractive for those who don’t mind staying invested for 5 years since it provides an annual interest rate of 8.5 per cent along with income tax saving benefit under Section 80C. For others, there is the government-backed fixed deposit option offered at the post office where they can choose the five year term deposit option offering 7.8% p.a. interest rate. Similarly, there is the five year National Savings Certificate (NSC) which also provides Section 80C deduction and is currently offering annualised interest rate of 8%.

 Explore FDs from private banks If you are looking for bank fixed deposits only, consider FDs from new banks like IDFC Bank and Bandhan Bank which are still offering an annual interest rate of 7.5% and 8% respectively on their one year fixed deposits. Clearly, the time has come for FD investors to be prepared for interest rate cuts and prepare to thrive in the coming period of lower interest rates.