Bank FDs are once again offering attractive interest rates all thanks to RBI

If you thought that fixed deposits were not attractive any longer, think again. A lot has changed in the last few weeks and months. The RBI has hiked the repo rates by 190 basis points between May and September this year and that has had an obvious impact on the cost of loans and the cost of deposits. Obviously, conservative investors are laughing all the way to the bank. FD rates of interest are not only starting to match inflation but are also starting to look attractive. In the midst of all this disruption in global markets and fears of global recession, bank FDs are once again starting to look like a virtuous proposition.

A slew of private banks like ICICI Bank, Kotak Bank and Axis Bank have sharply hiked their deposit rates by 100-125 basis points in the last couple of months. Other banks are likely to follow suit, sooner rather than later. For long, the FDs have been favoured products, which gradually became less preferred as rates started falling. Now debt funds are getting hit by higher interest rates, equities are being hit by volatility while the FDs are suddenly looking like an island of peace amidst an ocean of turmoil. It has just added to the pool of options to invest hard-earned money and depositors are not complaining about the choice.

In India FDs are offered by banks, NBFCs and other financial institutions. On the risk scale, the bank FDs are the safest as they have a deposit insurance guarantee. These FDs are also liquid in the sense that you can take loan at short notice against these FDs. The returns are assured, irrespective of which way the stock market turns or the interest rate changes. This is assured through the tenure. Above all, if you are willing to take a long term 5-year FD and above, then you also get tax exemptions under Section 80C of the Income Tax Act. And, if you are a senior citizen, then you are anyways entitled to 50 bps higher rates of interest.

One objection to the FDs is that they are tax inefficient. But they there are basic exemptions available in case you are a senior citizens. The higher rates also makes the FDs very attractive for the people in the lower tax brackets to also opt for the FDs. Today the typical retail term deposits offers 5.75% to 6.10%, while the wholesale FDs offer rates in the range of 6.0% to 6.5%. With RBI planning to hike rates by another 50 bps, this is only likely to become all the more attractive to investors. Let us take a quick look at what are the actual rates that some of the leading private banks are offering on FDs.

Sampler of FD rates offered by leading banks

The rates offered on FDs are up sharply after the latest rate hike. Here is a quick summary.

    • Effective October 2022, ICICI Bank is offering rates ranging between 3.00% to 6.10% on general FDs depending on the tenure. For senior citizens it goes up to 3.5% to 6.60%. ICICI Bank FDs range in tenure from 7 days to 10 years.

    • Kotak Bank offers rates ranging from 2.50% to 6.20% to general FDs from October 2022 while the senior citizens can earn in the range of 3.00% to 6.70% on these FDs. FD tenure at Kotak Bank ranges from 7 days to 10 years.

    • Effective October 2022, Axis Bank is offering rates ranging between 2.75% to 6.15% on general FDs depending on the tenure. For senior citizens it goes up to 2.75% to 6.90%. Axis Bank FDs range in tenure from 7 days to 10 years.

    • Effective October 2022, DCB Bank is offering rates ranging between 4.80% to 7.10% on general FDs depending on the tenure. For senior citizens it goes up to 5.30% to 7.60%. DCB Bank FDs range in tenure from 7 days to 120 months.

    • RBL Bank is offering rates ranging between 3.25% to 7.25% on general FDs depending on the tenure. For senior citizens it goes up to 3.75% to 7.75%. RBL Bank FDs range in tenure from 7 days to 240 months.
However , investors must exercise caution while plumping for FDs purely based on the rates offered.