Interest rates have started rising again after four years. The Reserve Bank has increased the rates only a few days ago. This will lead to increase in bank and deposit rates. Banks have started increasing loan rates.
We are also seeing a slight hike in deposit rates. If your earnings are dependent on Fixed Deposits (FD), Adil Shetty, CEO, BankBazaar tells you what to keep in mind in the coming weeks.
Get a short term FD
The highest rates are available in banks on deposits with a tenure of more than 3 years. The rates are lower on deposits with shorter tenures than these. For example Canara Bank one year FD rate is 5.30% and 5 year FD rate is 5.75%. Clients can make short term deposits for the time being. When rates go up a lot, make a small long-term deposit as well.
Do Laddering Set
your interest rates as a ladder. Make deposits at different tenors and interest rates. This will give you a way to earn more interest and your money will not get stuck in a single rate deposit. Your deposits will mature every short period of time and you can reinvest them for higher rates.
Difference in interest rates of private-government bank
Every bank takes deposits from the depositor at its own interest rate. Private banks will generally give you higher interest. Compared to them, government banks will give slightly lower rates. For example, the rate of 5 year FD of ICICI Bank is 5.60% and that of State Bank of India is 5.40%.
One exception is that post office rates are much higher than both of them when compared to government and private deposits. On their 5 year FD, you will get 6.7% interest. However, all these rates are going to increase now.
Understand the difference between big and small banks,
the highest rates come from small banks. Large banks, especially public sector banks, will have lower rates. For example Suryoday Small Finance Bank offers 7% interest on 3 year FD. There are many co-operative banks as well, which will give you even higher rates. The lower the risk, the lower will be the return. The higher the risk, the higher the return.
Every bank has some risk which you as a customer must understand. There are some banks which are giving higher rates, but in the last years, RBI acted on them and the money of the customers got stuck.
Apart from inter
bank and post office in banks and companies, you can also invest money in company FD. Check the company’s credit rating. If it is AAA, then it is considered safe. Less than AAA is a risk and your money may get stuck. This option can give you 100 to 200 basis points (1-2%) higher returns. This can greatly help your earning.
