The repo rate has now been raised by 0.50 percent by the RBI during its monetary policy meeting on June 8, 2022, bringing the total hike to 0.9 percent in just 36 days. It obviously indicates that the best days are now here for fixed deposit (FD) investors, who have seen FD interest rates fall by 40% over the last six years, from the peak level of 9% offered by SBI in September 2014 to 5.4 percent in May 2020.
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Top 2-year senior citizen bank FDs
Here are the top banks offering highest interest rates for senior citizen fixed deposits (FD) for two-year tenure. (The rates are as on June 9, 2022)Bandhan Bank, DCB Bank, IndusInd Bank and RBL Bank offers interest rate of 7 percent to their senior citizen customers. These interest rates are compounded quarterly and Rs 10,000 will grow into Rs 11,488.82. IDFC First Bank offers an interest rate of 6.4 percent and Rs 10,000 will grow into Rs 11,376.39 in the span of two years.
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Should you book long term FDs after current hikes?
While a rate hike is good news for depositors, it also brings with it a slew of questions. Despite the fact that interest rates are now moving in the opposite direction, no one knows where they will eventually peak or how long it will take. If you wait longer to book your FD for a higher rate, you will lose out on current rising rates, and if you book long-term FDs after only a few rate hikes, you may lose out if rates continue to rise in the future.
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Should one wait for rates to cross 7-8% for booking long term FDs?
If you’re trying to book a long-term FD or a large FD that needs to be renewed, now might not be the best moment. In a rising rate environment, it is preferable to invest in short-term FDs so that you can benefit from the rate increase during the investment period. As a result, booking a 6-month to one-year FD could be a better option. You can book longer-term FDs whenever these FDs mature and you earn a better rate at renewal.
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How to tweak your FD ladder in the current situation
It is better to create a FD ladder as it can be a viable alternative because it allows you to divide a large deposit into multiple parts and book each part after a period of time to get the average return and periodic liquidity when interest rates are volatile. It is, nevertheless, critical to select the correct deposit tenure and frequency. In a rising rate environment, maintaining the tenure and gap between deposits short is critical to ensuring that the deposit benefits from rapidly rising rates at maturity. To build a stable ladder, gradually increase these tenors. If you have Rs 10 lakh, you can open a Rs 2.5 lakh FD for six months, a Rs 2.5 lakh FD for nine months, and so on. When your first FD matures, you can extend the tenure to two years, and when your second FD matures, you can extend the tenure to two years and three months, and so on. Increase the duration to 3 years and the gap between the two FDs to 9 months once these FDs begin to mature.
