After RBI's off-cycle monetary policy rate cut to lowest ever of 4%, SBI also slashed its fixed deposit rates across tenures and the course shall likely be followed by other bankers too sooner or later. Currently 1 year FD with SBI after the recent deposit rate cut fetches 5.1% return per annum.
Why rates may head further southwards on deposits?
This is as the repo or with the benchmark rate cut, interest on fixed income interest is likely to go down herein savings bank account is also taken into account. And if experts are to go by, there can be a case for bank FDs upto 6 month tenure to fetch returns at par with savings bank account.
What you can do?
Look for other alternative options for steady income source:
Herein other fixed income instruments which are opted for steady flow of income can be considered such as PMVVY by seniors as well as Senior citizens savings scheme.
You can invest in fixed deposits of small finance banks:
Small finance banks which are also under the aegis of Reserve Bank of India are also by far safe to keep our deposits with for earning returns. And these definitely offer a higher return by 200 or 300 bps in comparison to public sector banks.
Also, as given the latest RBI rate cut, these banks may also be prompted to cut FD rates it shall be wise to bet on a deposit at the earliest with these banks.
Spread your investments across banks (even amount wise)
To fetch a better return, investible surplus can be deployed with different banks as well as across tenures and even amount wise. This will ensure that your FDs are not locked in at a lower rate of return if the interest rate is going on the higher side.
Also, all the savings of a investor in savings account, RD and fixed deposit up to Rs. 5 lakh is protected by insurance in case the bank defaults.
Fixed deposits are for liquidity, safety and assured returns:
If your objective is for a longer tenure and fetch higher returns, you need to consider other investments available both from the fixed income space such as PPF, NSC etc or mutual funds with debt or equity as their underlying. So, at best investors need to consider fixed deposits with bank for 2-3 years.