If you have in the past one year taken a bank fixed deposit or a company fixed deposit for a longer term duration like 3 to 5 years make sure that you do not break it, unless there is a dire emergency.

Let's give you an example. A year bank deposit rates for a three to five year tenure were in the range of 9.25-9.50 per cent at a reputed bank. The same has now fallen to 8.75 per cent. In fact, interest rates in the economy are all set to move lower further.

Why Interest Rates Are Likely to Fall Further?

In India, the Reserve Bank of India (RBI) more or less controls interest rates by controlling the repo rates. Repo rates are rates at which the Reserve Bank of India lends money to banks in India. It is currently at 7.75 per cent. If the RBI reduces these rates, then banks tend to lower their deposit rates, though it may not always be the case.

Now, whether the RBI lowers rates generally depends on inflation in the economy. The RBI has already cut interest rates once this year in Jan and we are in for more cuts as WPI and CPI Inflation has fallen. In fact, the WPI inflation has fallen to -0.39, the lowest one has seen since June 2009. This is good news for borrowers as it could lead to cut in interest rates.

However, it is not good news for deposit holders as they could see interest rates on fixed deposits falling. It's therefore a better proposition not to break deposits and to invest in deposits now, and lock in money for longer term duration like 3-5 years.

Take a Look At Interest Rates On Fixed Deposits From The Leading Banks in India

As can be seen from the above table interest rates at some of the top banks in the country range from 8.25% to 8.75% for deposits in the range of 3-5 years. Analysts believe that we could see a drop of another 0.50 basis points in interest rates during the course of the year. This means that you would get far lesser interest rates then you are getting currently.

It is therefore advised that we should not break deposits that we have as you many end up investing at much lower rates.

GoodReturns.in