Start Booking FDs at High Interest Rates Before They Start Falling Again

Are the good days of upper FD rates well-nigh to come to an end?

The FD depositors have had a good time over the last one year. With the RBI having hiked repo rates by a total of 2.5% in the last 1 year, the FD rates have moreover moved up significantly. And while many depositors have started putting in money in FDs of longer duration, there are still many who are tumbled what to do.

They are thinking that –

Is it a good time to typesetting FDs at higher rates now than waiting more?

Let me offer you my view here (and not a recommendation).

Also, this view is for those who use wall Fixed Deposits (FDs) to park sufficiently large amounts. If you use debt funds instead of FDs as you understand the benefits (even without the change in debt fund taxation in 2023), then this vendible is not for you.

My views (in summary) were moreover published in The Economic Times (07-June-2023). You can read the full vendible using this link or have a squint at my view quotes below:

Published in The Economic Times (June 7th, 2023)

Now let me elaborate on this view and try to share increasingly detailed thoughts

Generally, the RBI Repo Rates are considered one of the major factors to assess the interest rate trajectory of the economy. And in the last year or so months, RBI has hiked repo rates (from a low of 4%) by a total of 2.5% to the current 6.50%.

While there are no guarantees, but given that RBI decided to not to transpiration the policy repo rates in last 2 meetings in April and June 2023, there are now signs that if this is not the peak rate yet, plane then the rates might be very tropical to peak rates (barring any unexpected or upturned global event).

There is one thing to understand well-nigh FD rates and Repo rates. When the banks are deciding FD rates, the RBI Repo rate is not the only factor influencing the FD rates. The rates are moreover decided based on what is the credit demand growth and petrifaction growth rates, the bank’s own time-based asset-liability profile, overall liquidity, etc.

And please note that the banks are never in a hurry to pass on the full goody of rate hikes to FD depositors (like they are in passing on the hikes to loan borrowers!).

But given all the factors at play now, the banks may still go for a little increasingly increase in FD rates. But they may not as well. We can never be sure. And FD rates are pretty good unbearable now, at least for the worldwide man who uses FD regularly.

Last year virtually this time (mid-2022), I had written that FD rates will go up to 7-8% soon. Here is the image from that article:

I had moreover said that FD rates may get quite tropical to 8% in 2023 (image unelevated from the same article), which is now playing out

While there was nothing special well-nigh predicting this as simple factors were at play, the important question now is what to do now?

Should you start locking in FDs of Long Periods (for Several Years) Now?

I think Yes. Given that FD rates are near to their expected peaks this cycle, it is seemingly a good time to uncork locking in the money (you have earmarked for FDs) in sufficiently long FD tenures like 3-5 years if not more. And if not all the money, then at least a major chunk. You will hands get 7-7.5% FD rates for long elapsing for most banks. The Small Finance Banks offer higher rates but you should limit your exposure to them if you have to make FDs with them

So historically speaking, these are once decent FD rates and its largest to start locking in your money if you’re a FD person.

What if you still want to wait increasingly for rate hikes?

Your money your decision. Up to you. You can rely on timing your petrifaction as tropical to highest FD rates that you can get. Or you can start now also. You can plane go for FD laddering in 3 parts (just as an example). Say you have Rs 20 lakh that you want to put in a wall FD. Then consider deploying at least 70-75%, i.e., well-nigh Rs 14-15 lakh in 5 year FD and lock-in the upper rates over the next month or so. With rest, you can wait for higher rates if you want to do that.

And if you have a large value (much higher than Rs 5 lakh DICGC Petrifaction Guarantee) to put in banks, then spread your FDs wideness a few banks. Put at least 65-80% in RBI-identified SIBs or Safest Banks of India. The rest you can park in other banks, which may seem lulu to you on the understructure of higher interest rate offers.

And if you have old FDs that you booked a year or two when at much lower rates? Should you unravel Old FD to make new FD at higher rates?

Don’t be in a hurry to do that. If your FDs are tropical to maturity in a few months, then don’t go for premature withdrawal and lose interest and pay penalty. Let those FDs mature in due undertow as you may still get reasonably upper FD rates in a few months’ time to lock-in for new FDs you make later. Go for premature FD closure only if there is a large gap between the new FD rates on offer and the old rates on your existing FDs and also, if a sufficiently long time is still left in the tenure of the old FD.

I would like to repeat here this vendible mainly focused on those who often use wall Fixed Deposits (FDs) to park short-term money (for a few years). If you are well-appointed with bilateral funds and use debt funds instead of wall FDs as you understand the benefits, then this vendible is not for you.

Will debt fund returns modernize in 2023-24?

Disclaimer – The views expressed whilom should not be considered professional investment translating or telecast or otherwise. The vendible is for unstipulated educational purposes only. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the likes and take professional investment translating surpassing taking any financial decisions or deportment which may have financial implications now or in future.

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