If you are one of those investors who prefer the safety of bank deposits, then the 40 basis points hike in the repo rate by the Reserve Bank of India (RBI) is good news.
Major lenders like HDFC Bank and ICICI Bank have revised their fixed deposit (FD) rates in the last three weeks.
HDFC Bank Now. is offering 2.50-5.75% for various tenors on domestic fixed deposits of less than Rs. 2 crore, while the FDs of ICICI Bank are also in the same range. State Bank of India, which last revised its FD rates, offers an interest of 5.50% on tenors of five years and up to 10 years.
Note that the highest interest rate is generally paid on tenors of five years and above and senior citizens get additional payouts in the range of 50-75 basis points on their deposits.
While major scheduled commercial banks (SCBs) have been conservative in their interest payments, some smaller banks like IDFC First Bank are now offering FD rates in the range of 3.50-6.25%. IndusInd Bank is also offering interest up to 6.50% on its domestic fixed deposits.
Meanwhile, some small finance banks (SFBs) have now come out with higher interest rates on deposits.
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Ujjivan SFB recently increased the interest rates on its fixed deposits. Rates on deposits with tenures of 15 to 18 months have been increased by 75 bps to 6.75%, and for 990-day tenors by 35 bps to 7.1%.
Jan SFB offers up to 7% interest on its regular FD options.
Apart from banks, non-banking finance companies (NBFCs) also offer fixed deposits, which are called company FDs.
Bajaj Finance Limited recently increased its FD rates for non-senior citizens (44 months tenure) which now has the highest FD rate of 7.20%. Notably, Shriram Transport Finance offers rates up to 7.90% on its Fixed Deposits.
According to experts, FDs are not a good way to invest as the returns turn negative after inflation and tax. However, FDs are a good savings tool for emergencies or to park surplus funds. While company FDs are a viable option, investors should be aware of the risks involved.
“Compared to bank FDs, the risk is higher in case of corporate FDs. The interest rates are higher due to the added risk. The biggest credit risk at this point is that the company may not be able to pay back the depositor in the form of interest or principal. Keep in mind that this is not the case for all corporate FDs. Unless they are looking at AAA-rated NBFCs, retail investors may be better off looking at other options, said Adil Shetty, CEO, Bankbazaar.com.