Fixed Deposits (FDs) have always stood as a traditional financial instrument to invest money, be it a big amount or a small amount, to keep the money secure with an assured return. However, for the young population of India is not it is as lucrative as for the older demographics. The major reason behind this is sinking interest rates on FD, and the trend is likely to continue in the next few years. Coupled with this problem, there is also a challenge of a high inflation rate at 5.59%, which only worsened due to the pandemic. As the INR is losing its value, concerned citizens are not quite okay to put keep their money static for a long time, some investors with better risk appetites are also diversifying portfolios with investment in commodities. People, fall into the higher tax slab, some of them are also not comfortable with this taxable income.
Interest rates now
Major nationalized banks and private banks are having all-time low FD interest rates now, for example in SBI it's 3.50% - 5.70%, in HDFC it's 3.50% - 6.25%, in Axis bank it's 3.50% - 6.50%. Here is a list of FD interest rates of top Indian banks. However, FD interest rates for senior citizens are marginally higher than other age groups.
|Bank||Tenure||FD Interest Rates (PA for|
|SBI||7 days - 10 years||3.50% - 5.70%|
|HDFC Bank||7 days - 10 years||3.50% - 6.25%|
|Axis Bank||7 days - 10 years||3.50% - 6.50%|
|Bank of Baroda||7 days - 10 years||4.25% - 6.15%|
|ICICI Bank||7 days - 10 years||3.50% - 6.00%|
|Punjab National Bank||7 days - 10 years||4.25% - 5.80%|
|IDBI Bank||15 days - 20 years||3.10% - 5.90%|
|Canara Bank||7 days - 10 years||4.25% - 5.85%|
|RBL Bank||7 days - 10 years||5.00% - 7.25%|
|Yes Bank||7 days - 10 years||5.00% - 7.25%|
|Source: WishFin, September, 2021|
It is important to remember that, in 2015, Indian nationalized banks used to give 8% to 9% per annum (PA), private banks 8% to 9.25% PA, and foreign banks 6.75% to 8.6% PA interest rates for FD, making public banks an obvious preference for FDs. However, these rates too were reduced at that time. Now, within 5-6 years the situation has changed largely and people are moving out from this traditional instrument.
Union government of India was already trying to keep the interest rates low for the last few years, and when the pandemic hit, RBI decided to push more liquidity in the economy. Eventually, the banks' FD interest rates did not show any intention to get better. In October 2019 RBI's repo rate was 5.15%, in March 2020 at the initial period of the Covid-19 pandemic it was 4.40%, and from May 2020 to date, it is at 4.00% making it an all-time low. Hence the FD interest rates too are very poor while the interest rates for loans are better affordable now.
Where else can you invest?
When someone is stepping out from the FDs, a better risk appetite should be grown. There are multiple mutual funds options with the Systematic Investment Plan (SIP) facility with good returns that will make you a disciplined and systematic investor. But with a lesser risk appetite and desire to get an assured return, there are other government financial instruments. RBI's Sovereign Gold Bond has become quite a popular investment opportunity now that offers you a hedge against inflation, diversifies your portfolio, and assured income from the government of India, from any registered bank.
However, if you are a senior citizen, you can choose the senior citizens saving scheme (SCSS) by the RBI that will fix your money (up to Rs. 15 lakh) for five years, but will offer you quarterly interest at 7.4% PA. If you are not a senior citizen but have an amount that needs to be secured, you can also invest it under the name of your parent, who must be a senior citizen. On the other hand, you can also invest (up to Rs. 15 lakh) in the Pradhan Mantri Vay Vandana Yojana (PMVVY), administered by the Life Insurance Corporation of India (LIC), at a 7.4% interest rate PA. Another monthly income option is the Post Office Monthly Income Scheme (POMIS) that offers a 6.6% interest rate PA but the highest investment in the scheme is allowed only Rs. 4.5 lakh.
With the concern of an all-time low FD interest rate, these are some of the popular assured investment options. Even if the government increases the interest rates, the level is not anticipated to reach as high as 5 years back. Also, you cannot keep your money safe from inflation. So, before choosing an FD option, you must be concerned about the purpose of your investment, your risk appetite, taxation, and for what tenure you want to keep your money. The above investment options, rather than FDs, will be wise to explore.