Look at two-year FDs for now, say experts

PERSONAL FINANCE

With four rate cuts from the Reserve Bank of India (RBI) in the last four months, bank fixed deposit (FD) rates are beginning to come down. Many banks, including State Bank of India (SBI), Punjab National Bank (PNB) and ICICI Bank, have already declared that they would be cutting FD rates.

For instance, in early December, SBI was offering 10.5 per cent on a 1,000-day FD. This was lowered to 10 per cent in mid-December. A fortnight later, in January, the bank is offering only 9 per cent for the same tenure. For investors, who missed the bus in October and November, this is certainly bad news. However, all isn’t lost. There are some segments still where the rates on offer still look interesting.

Many banks are still offering good returns for tenures between one year and three years. ICICI Bank is offering an interest rate of 9.75 per cent for 590-day and 890-day FDs. Similarly, HDFC is offering 9.65 per cent for a 20-month deposit.This is mainly because of the fact that banks need money for these time periods. Said Maninder Juneja, senior general manager, ICICI Bank, “A bank first decides on the tenure where it would need the maximum money and FDs of that particular tenure are branded and sold accordingly.”

Financial advisors say that FDs of some tenures look attractive now. According to investment advisor Suresh Sadagopan, a two-year FD should be ideal for investors because after that there are expectations that interest rates would start rising again when the economy starts doing well and stock markets turn around.

Another advantage of investing in an FD now is that investors could earn stable returns at a stage when stock markets are not doing well. Also, there is a high safety factor in FDs. “A fresh look at equity markets or floating rate funds could be taken once things stabilise a bit more,” said another financial planner.

Investment advisors also suggest investment in FDs of public sector banks or financial institutions that have a past record. “This may lower your returns by around 25-50 basis points, but currently credit risk is the first criteria that an investor should look at,” said Sriram Venkatasubramanian, head, Centrum FCH Wealth Managers.