Special FD rates, while attractive, lose the medium to long-term race

Many banks have announced special fixed deposit (FD) schemes for specific tenures on which they are offering attractive rates. While you may begin allocating to them, keep some powder dry as rates could rise further.    

“As long as the domestic inflation rate continues to exceed the Monetary Policy Committee’s (MPC) mandated inflation band, and major central banks continue with their hawkish policies, one can expect the repo rate to increase further. Banks could steadily increase their FD rates,” says Gaurav Aggarwal, senior director, Paisabazaar.

The wide gap between credit and deposit growth rates is another driver. “Banks will need