Fixed deposits: Lock it fast, time running out

While SBI was the first one to announce a cut in its deposit rate across tenures, its one-year FD rate is set to go down from the current 7.5 per cent to 7.25 per cent with effect from October 5.

Deposit rates are the first to get hit by a cut in interest rates by banks. On Tuesday, State Bank of India was the first to announce a 40 basis point cut in its base rate, and over the last couple of days several major banks too have announced a cut in their rates between 25 and 35 basis points making it inevitable for the fixed deposit rates to go down. With other banks too set to bring down their term-deposit rates over the next few days, there is a short time window for FD investors to lock themselves into a higher interest rate that is currently being offered by some banks.

Investors must note that interest rates are on a downward trajectory and there is a possibility that they would decline further from current levels and hence it would only make sense for them to lock into a higher interest rate schemes for a period of three to five years, so that they continue to earn a higher interest despite a drop in the rates in the market.

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A cut in fixed deposit rates is also likely to have an impact on the interest offering on small saving schemes such as deposit with post office, savings into employees’ provident fund and the public provident fund. While the banks have called for a cut in rates of such schemes, finance minister Arun Jaitley has also hinted in the same direction. This only shows that the earning on these schemes are also set to go down for the small investors.

While SBI was the first one to announce a cut in its deposit rate across tenures, its one-year FD rate is set to go down from the current 7.5 per cent to 7.25 per cent with effect from October 5. Punjab National Bank too has announced a cut in its rates, also effective October 5. Private sector banks are also queuing up for the cut. Both Axis Bank and ICICI Bank have announced a 35 basis point cut in their base rate that sets the tone for a cut in their deposit rates. Investors should look for bank’s that have not yet announced a cut in their rates and are still offering attractive rates on their fixed deposits and make the most of it.

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