Interest rates

Interest rates on Fds are rising but who pays more?

If you are one of those investors who prefer the security of bank deposits, a 40 basis point hike in the repo rate by the Reserve Bank of India (RBI) is good news.

Major lenders such as HDFC Bank and ICICI Bank have revised their fixed deposit (FD) rates over the past three weeks.

HDFC Bank is now offering 2.50-5.75% for different maturities on domestic term deposits under 2 crore, while ICICI Bank’s FDs are also in the same range. The State Bank of India, which last revised its FD rates, is offering 5.50% interest on terms of five years and up to 10 years.

Note that the highest interest rate is usually paid on terms of five years and longer, and seniors get an additional payment on their deposits in the range of 50 to 75 basis points.

While major regular commercial banks (SCBs) have been cautious in paying interest, some smaller banks such as IDFC First Bank are now offering FD rates between 3.50 and 6.25%. IndusInd Bank also offers interest of up to 6.50% on its domestic term deposits.

At the same time, some small financial banks (SFBs) have now offered higher interest rates on deposits.

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Ujjivan SFB recently raised interest rates on its term deposits. Rates on deposits with terms between 15 and 18 months were raised by 75 basis points to 6.75%, and those with terms of 990 days were increased by 35 basis points to 7.1% .

Jana SFB offers up to 7% interest on its regular FD options.

Apart from banks, Non-Banking Financial Companies (NBFCs) also offer term deposits, known as FD companies.

Bajaj Finance Ltd has recently raised its FD rates with the highest FD rate now at 7.20% for non-senior citizens (44 month term). Notably, Shriram Transport Finance offers rates of up to 7.90% on its term deposits.

According to experts, FDs are not a great investment avenue as returns after inflation and taxes tend to be negative. However, DFs are a good savings vehicle for parking emergency or surplus funds. Although corporate FDs are viable alternatives, investors should be aware of the risks involved.

“Compared to a bank FD, the risks are higher in the case of a corporate FD. Interest rates are higher because there is additional risk. The greater credit risk at this stage is that the company may not be able to repay the depositor in terms of interest or principal. Keep in mind that this is not the case for all corporate DFs. Retail investors may do -be better to look at other options, unless they look at AAA-rated NBFCs,” said Adhil Shetty, CEO of BankBazaar.com.

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