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Interest rates are increasing – Should you open fixed deposits now to lock into higher rates?

The interest rates cycle has almost peaked. Is it the right time to lock into the high interest rates by opening fixed deposits (FDs) for a long term?

The Reserve Bank of India (RBI) has been raising interest rates quite steadily for the past few months.This has been bad news for loan seekers, since the interest rates for new loans have increased by 3%-4% in this time.

Even people who already have loans – especially long term, floating rate loans like home loans – have been hard hit. The rates on housing loans have also increased in line with the general rise in prevailing interest rates, which has increased either the Equated Monthly Installment (EMI) or the tenure of the housing loans.


What’s bad news for some can be good news for you

So in general, this is a bad development for people seeking loans or people with existing loans.

But if you have cash and are looking to invest it, this is excellent news for you – because now, even safe investments can fetch you good returns!

A bank fixed deposit (FD) is one such safe investment – and the interest rates on bank FDs have gone up significantly in the recent past.

(For more on FDs, please read “Fixed Deposit (FD) – A favourite for generations“)

So if you are looking for a safe investment avenue that also gives a decent return, bank FDs are definitely a good option now.


What should be the duration / term of the FD?

RBI has increased interest rate very frequently in the recent past, but that pace appears to be slowing down.

The factors that lead to such a fast rise in interest rates also seem to be under control, which means that the possibility of further rate hikes is low.

We can safely conclude that the interest rates are at or very near the peak – the possibility of interest rates rising further is remote. The possibility of the rates reducing is much higher, although not in the immediate future.

Therefore, it makes sense to open a fixed deposit account for a longer tenure now so that you can take benefit of these high interest rates for a long time – even if the rates reduce in between.

Conclusion: Try to open a fixed deposit account for 3-4 years so that you can lock into the high rates. For even higher rates, you can consider the “special” FDs offered by many banks, like a 390 or 1000 day FD.


Prevailing Rates of Interest on FDs

Here are the interest rates offered by some of the banks. (Remember, senior citizens usually get 0.5% more than these rates)

Bank NameRate of InterestTerm / Tenure / Duration
Tamilnad Mercantile Bank (TMB)10.50%620 days
Federal Bank10.00%333 days
Oriental Bank Of Commerce (OBC)9.80%1-2 years
State Bank Of Patiala (SBP)9.75%555 days
State Bank Of Mysore (SBM)9.75%500 days
Kotak Mahindra Bank9.60%700 days
Punjab and Sind Bank (PSB)9.60%1000 days
State Bank Of Travancore (SBT)9.60%500 & 1000 days
Syndicate Bank9.55%1-2 years
State Bank Of Hyderabad (SBH)9.50%1000 days
ING Vysya Bank9.50%366-500 days
Corporation Bank (CorpBank)9.50%1-2 years
IDBI Bank9.50%500 days, 7-10 years
Canara Bank9.50%366-554 days
Jammu & Kashmir Bank (JK Bank)9.50%500 days
Bank Of India (BOI)9.50%1-2 years
IndusInd Bank9.50%400 days
State Bank Of Bikaner and Jaipur (SBBJ)9.50%3-5 years
Punjab National Bank (PNB)9.50%1111 days
Central Bank Of India9.40%555 days
Bank Of Baroda (BOB)9.35%444 das
Vijaya Bank9.35%2-3 years
YES Bank9.30%271 days, 956-960 days
Dena Bank9.25%2-3 years
Indian Overseas Bank (IOB)9.25%3-5 years
ICICI Bank9.25%590,790, 990 days
Axis Bank9.25%366-419 days
Indian Bank (IB)9.25%270-365 days
HDFC Bank9.25%744 days

(Although care has been taken to provide you the most accurate interest rates, please confirm the rates with the respective bank branch before taking any investment decision)


Should you break an old FD?

This entire discussion is about opening fresh FD accounts. But should you break an old FD with a lower rate to open a new fixed deposit account at a higher rate?

Please read “Interest rates have risen – Should you break your old fixed deposit to get a higher interest rate” to know.


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