On June 6, the Reserve Bank of India (RBI) announced a 50 basis point cut in the repo rate. This is more than expected — economists had predicted only a 25 basis point (0.25%) cut.
Since the reduction is double what was expected, it will soon impact the interest rates offered on bank fixed deposits (FDs).
Both private and public sector banks are likely to start reducing FD interest rates. So if you’re planning to invest in an FD, now is your last chance to lock in higher rates.
You Can Still Earn Up to 7.25% Interest
At present, many public and private banks are offering 6.5% to 7.25% interest on long-term (5-year) fixed deposits. These attractive rates may not be available in the near future.
A bank official said, “If you’re planning to invest in FD or your existing FD is about to mature, this is the final opportunity to secure high interest.” Experts advise keeping a few key points in mind before booking your FD.
Things to Keep in Mind While Booking an FD
If your bank is offering 7% or more interest on 3- to 5-year deposits, it’s wise to invest part of your money at that rate.
Experts expect RBI to continue reducing interest rates in the coming months. This could keep FD interest rates low for the next 1–2 years.
Instead of investing the entire amount in a single FD, it’s better to spread the amount across FDs of different maturities.
For example, if you have ₹1 lakh to invest, split it into three FDs of ₹33,000 each with maturities of 1, 2, and 3 years.
If rates increase again after a year or two, the matured amount can be reinvested at higher interest.
Open FD in the Name of Senior Citizens
Banks offer higher FD interest rates to senior citizens. If you open an FD in the name of your elderly parents, you can get up to 0.50% or more in extra interest.
However, make sure to add yourself as the nominee when opening the FD.
Many people skip this step, which can cause problems in withdrawing the funds in case of the parent’s death.
To avoid complications, always ensure the nominee details are filled in correctly.
Avoid Selecting the Auto-Renew Option
While creating an FD, avoid choosing the auto-renew option.
If auto-renew is selected, the bank will automatically renew the FD upon maturity without checking for better interest rates.
This might cause you to miss out on higher returns offered by other banks or better investment opportunities.
