The State Bank of India (SBI) has increased fixed deposit (FD) interest rates on certain tenors by up to 20 basis points (bps), effective from June 14, 2022 for deposits below Rs 2 crore

According to the SBI website, the bank has raised the interest rate on FDs with terms ranging from 211 days to less than a year by 20 basis points to 4.60 percent. For 1 year to less than 2 year, the interest rate offered has been hiked to 5.30 percent from 5.10 percent. And the interest rate has been raised by 15 basis points on 2 years to less than 3 years tenor FDs to 5.35 percent from 5.20 percent

Latest SBI FD interest rates
Source: SBI website

Senior citizen FD
The rate applicable to all Senior Citizens and SBI Pensioners aged 60 and up will be 0.50 percent more than the rate applicable to resident Indian senior citizens for all tenors.

Senior citizens will earn 5.10 percent for terms ranging from 211 days to less than a year. The bank will offer 5.80 percent on 1 year to less than 2 year tenors. For 2 years to less than 3 years it will offer 5.85 percent after the hike.

Banks offering highest interest rates on 2-year senior citizen FDs

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RBI hikes repo rate

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.

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.

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.

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.

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.

The suggested interest rates will apply to new deposits as well as renewals of maturing deposits. The interest rates on retail deposits and NRO deposits under the "SBI Tax Savings Scheme 2006(SBITSS)" would be linked with the projected rates for domestic retail term deposits.

SBI had last increased FD interest rates in February 2022. With effect from February 15, 2022, SBI had hiked interest rates for FD terms longer than two years by 10-15 basis points.

Good news for FD investors
The Reserve Bank of India (RBI) hiked the repo rates by 50 basis points in its monetary policy meet on June 8, 2022. That brings the total rate hike by the central bank to 90 bps in a little more than a month. More banks are expected to hike FD rates in the coming months, which is good news for FD investors.

These banks offer highest interest rates on 5-year FDs

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What is an FD?

A fixed deposit, often known as an FD, is a type of investment instrument offered by banks and non-banking financial institutions (NBFCs). You invest for a certain period of time and receive a fixed interest rate with FDs also, you will receive fixed returns regardless of how interest rates fluctuate or how the economy performs at the time of investing.

Banks offering best rate on 5 year FDs

DCB offers the best rate for 5 year bank fixed deposit, as of now it offers 6.60 and quarterly compounded return of 10,000 will be Rs 13872.27. Indusind Bank is offering 6.50 percent and quarterly compounded return of 10,000 will be Rs 13804.20. RBL Bank is offering interest rate of 6.30 percent and quarterly compounded return will be Rs 13669.00. IDFC First Bank and Karur Vysya Bank offer interest rates of 5.25 percent and 5.89 with quarterly compounded returns of Rs 13635.39 and 13336.47 respectively. (These interest rates are as on June 9, 2022.)

Create FD ladder

Distribute the amount of your FD over several years. Investing in FDs should be done in a 'laddering' way to minimise reinvestment risk and ensure liquidity. Instead of booking one large FD for the long term, you break it into parts when making an FD ladder. In a ladder, the amount is divided into smaller FDs, which are then booked one by one after an interval of 3-5 years, from the first to the last. With such a large gap between the first and last, your prospects of getting the best rate on your FD will be high.

Covered in DIGCC

Each bank customer is eligible for insurance up to a maximum of Rs 5,00,000 for both principal and interest amounts held in the bank if the bank license is cancelled or during liquidation as under Deposit Insurance and Credit Guarantee Corporation (DIGCC).

Go for Sweep-in FD

The excess money in the savings account is automatically moved into the fixed deposit whenever the amount in the savings account exceeds that stated limit. Your savings account balance will earn a higher rate of interest than if it were in a regular savings account.

According to HDFC Bank, “When you apply for the sweep-in facility, what the bank really does is, it breaks up units of the specified FD in units of Rs. 1. In doing this, it makes sure funds are available in your sweep-in Savings or Current Accounts, whichever is linked. With this, cheques or any other debit transaction from your account is not hindered due to lack of sufficient funds in your Savings/Current Account.”

How to tweak your FD ladder in the current situation
Making an FD ladder is an option as it helps you to break a big deposit into many parts and book each part after a time gap so that you get the average return and periodic liquidity when there is volatility in the interest rate. However, choosing the right tenure and frequency of deposit is important. In a rising rate scenario keeping the tenure and gap between deposits low is the key so that the deposit gets the benefit of growing rates quickly at the time of maturity. These can be gradually increased to complete a stable ladder.

For instance, if you have Rs 10 lakh you can make the first FD of Rs 2.5 lakh for six months, then a second FD of Rs 2.5 lakh for 9 months and so on. Once your first FD matures you can increase the tenure to 2 years and after that once the second FD matures you can keep the tenure 2 years 3 months and so on. Once these FDs start maturing you increase the tenure to 3 years and increase the gap between the two FDs to 9 months.

Create an FD ladder to maximise returns from rising interest rates

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Create an FD ladder to maximise returns from rising interest rates

Cheers for FD investors as RBI hikes rates again

Good days are finally here for fixed deposit (FD) investors as banks and other financial institutions have started to increase FD interest rates, albeit marginally.

Impact of RBI rate hike

A 90 basis points of hike in FD interest rate from 5.5% to 6.4 % means that on each 1 lakh rupee FD for 5 years you will end up getting Rs 5,958 additional interest payout.

Long-term vs short-term FD

Usually, it is the long-term FD that can see a higher increase in the interest rates compared to the short term at this stage. As the interest rate increases, we will continue to see these FDs offering better rates.

Is FD laddering a good option now?

Making an FD ladder helps you to break a big deposit into many parts and book each part after a time gap so that you get the average return and periodic liquidity when there is volatility in the interest rate. One can follow this concept very well for their contingency funds if they keep them parked in the bank account or FDs.