The interest rates on the fixed deposits have been trending downwards with the decline in RBI’s repo rate. With the fall in FD rates, investors are wondering about their investments in a fixed deposit. Another not so good fact about the fixed deposit is that it is fully taxable as per your tax slab rate. Should you invest in a fixed deposit with a declining rate in FD interest rates?
Have a look at the current FD rates of some of the banks:
| Banks | FD Rates | Tenure |
| Bajaj Finance | 7.40% – 7.85% | 12 months to 60 months |
| PNB Housing Finance | 7.20% – 8.00% | 12 months to 120 months |
| HDFC | 6.88% – 7.13% | 33 months to 66 months |
| IDFC First Bank | 4.00% – 7.75% | 7 days to 10 years |
| Axis Bank | 3.25% – 6.45% | 7 days to 10 years |
Now, that you know about the rate of interest on fixed deposits, here are some factors that you must keep in mind before deciding on investing in a fixed deposit.
- Consider post-tax returns on your investments: The fixed deposit is taxed as per your income tax slab rate. If your tax slab rates fall in the lower bracket, then the returns may not look that bad. Thus, it would help if you calculated post-tax returns on your investments.
- You can save taxes on your investments: Well, there are ways by which you could save taxes on your investments. As the interest is taxed at 10%, if the income exceeds Rs 10,000, thus it would help if you invest in multiple FD of a smaller amount.
- Choosing a financial institution carefully: Before investing in a fixed deposit, you must compare the interest rates of various institutions to get a better return on your investments. However, you must not forget to check the credibility of the financial institutions. There are several co-operative banks and small financial companies which offer a higher rate of interest on a fixed deposit. However, one must check the credit rating of these institutions.
- Choosing a short-term fixed deposit: You can invest in a fixed deposit for tenure ranging between 7 days to 10 years. If the interest rates for a fixed deposit are falling, you must invest in a short duration of fixed deposit. It can help you to minimise losses on your investments. Also, instead of investing the entire amount in a single FD spread it into 2-3 FD. It can help you to get better returns on your investments as well as in case of failure of financial institutions you can get insurance cover for your deposits.
- Always invest in limits: If the interest rate of fixed-deposit is low, you can invest up to certain restrictions. You can set the limit based on your income level. Investing in a fixed deposit for certain caps can help you to overcome liquidity challenges in the times of emergency.
- Combining with other investment schemes: As the interest of the fixed deposits is falling, you must thus plan your investment by combining several investment schemes. You could invest some portion of your money in instruments like mutual funds, the other part of funds could be utilised in safer investment instruments like a Public Provident Fund.
- Choosing interest on fixed deposits: You can choose between cumulative and non-cumulative fixed deposits based on your financial goals. The interest on cumulative fixed deposits is compounded at the end of the maturity period, and rate of interest is higher as the interest is paid at the end of tenure. The pensioners who want to get a regular return on the investments can invest in non-cumulative fixed deposits as the interest is compounded regularly; monthly, quarterly and annually.
Conclusion: Thus, even with a declining rate of interest, a fixed deposit provides better returns on your investments than regular savings. Also, opening a fixed deposit is as easy as a fixed deposit and can thus offer you liquidity in critical situations.
Fall in the FD Rates : What is the next take by the investors ?
The interest rates on the fixed deposits have been trending downwards with the decline in RBI’s repo rate. With the fall in FD rates, investors are wondering about their investments in a fixed deposit
Factors to keep in mind before deciding on investing in a fixed deposit.
- The fixed deposit is taxed as per your income tax slab rate. If your tax slab rates fall in the lower bracket, then the returns may not look that bad. Thus, it would help if you calculated post-tax returns on your investments.
- As the interest is taxed at 10%, if the income exceeds Rs 10,000, thus it would help if you invest in multiple FD of a smaller amount.
- Before investing in a fixed deposit, you must compare the interest rates of various institutions to get a better return on your investments. However, you must not forget to check the credibility of the financial institutions.
- If the interest rates for a fixed deposit are falling, you must invest in a short duration of fixed deposit. It can help you to minimise losses on your investments.
- As the interest of the fixed deposit is falling, you must thus plan your investment by combining several investment schemes like investing some portion of your money in mutual funds, the other part of funds in a Public Provident Fund.
