Fixed deposit rates revised - What you can do to maximise your returns

Major banks have revised interest rates on bank fixed deposits (FDs). State Bank of India on April 29,2017 cut interest rates on FDs by 25-50 basis points (bps) in select maturity baskets.

On April 23,2017 Bank of Baroda reduced interest rates in the smaller tenure FDs and raised interest rates for the longer duration FDs. The lender reduced interest rate from 7% to 6.90% in FDs of one-year tenure.

However, in the 3-year to less than 5-year tenures, it has increased rates from 6.5% to 6.75%. On April 28, 2017 Axis Bank Ltd raised interest rates in select maturity baskets by 25 basis points. For instance, in the 12 month to less than 18 months maturity basket, the bank has raised the rate to 6.5% from 6.25% and is applicable for deposits of Rs 5 crore and above. Kotak Mahindra Bank Ltd raised interest rate in the 1-3 year maturity basket from 6.25% to 6.5% for deposits up to Rs 1 crore

Why the change?

Banks have raised interest rates for some long-term duration FDs even as they cut rates in the short-term maturity basket. “This is happening due to high liquidity in the short-term buckets,” said Hatim Broachwala, a banking analyst at Nirmal Bang Institutional Equities.

How long will the liquidity remain in surplus? “Interest rate will remain soft till liquidity goes away. It is difficult to give a duration. Currently, liquidity remains sticky,” said Broachwala.

What does it mean for you?

Interest rate of bigger banks has changed in the last couple of weeks. If you are looking to invest in fixed deposit, do check out the rates carefully for the tenure you want to invest. “You don’t need to continue maintaining fixed deposit as this is a falling interest rate scenario. However, if you still want to invest in FDs, look for the maturity basket with better interest rate. However, remember that you carry the risk of reinvestment,” said Surya Bhatia, a New Delhi-based financial planner.

What are the alternatives?

“You can consider investing in short-term and ultra-short term funds,” said Bhatia. Also since some new banks have launched recently, you have the option of getting higher interest rates on FDs. But do compare the rates; you can also take the help of online aggregator platforms.