Bad news for retired folk as interest rates on fixed deposits begin to fall

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Bad news for retired folk as interest rates on fixed deposits begin to fall
Retired individuals who depend on interest rates for monthly income have now to deal with reduced interest rates, if they renew their fixed deposits.

Select few strong company fixed deposits will see interest rates drop. For example, the Shriram Transport Unnati fixed deposit will see interest rates revised lower from August 17, 2014.

Mahindra Finance on the other hand has stopped accepting deposits until August 18, after which there will be an interest rate revision. In all probability, interest rates are likely to be cut by the country's reputed NBFC.

IDBI Bank, which was offering an interest rate of 9.3 per cent on its 500 day deposit has cut the interest rate to 9.20 per cent.

Select banks have also reduced interest rates. Karnataka Bank, which was until recently offering an interest rate of 9.5 per cent on its1-2 years deposit has reduced the same to 9 per cent.

Likely decline to continue

The decline in interest rates is likely to continue. Interest rates in the economy, largely depend on inflation and liquidity. At the moment liquidity position in the banking system is fairly comfortable and inflation has been declining. Wholesale Price Inflation for July has declined to a 5-month low. The Reserve Bank of India (RBI) may cut the repo rate sometime towards the end of the year. Repo rates are interest rates at which the RBI lends money to banks. Any drop in these rates, signal a drop in interest rates in the economy.

If the RBI cuts repo rates, interest rates may fall.

Conclusion

It's advised that investors investing in deposits, do it for the long term, since interest rates may decline. By investing for the long term, you are likely to hedge against declining interest rates.

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