Fixed deposit investments in the debt category are a safe choice for investors with a low-risk appetite, such as senior folks, for both short- and long-term personal financial goals. A debt investor can receive an annual interest rate also dubbed as regular income by depositing a predetermined amount for a variable maturity time ranging from 7 days to 10 years. Individuals should, however, consider their investment horizon and interest rates offered by leading Indian banks and the Post Office before opening a fixed deposit account. In terms of interest rates on fixed deposits, here we have compared State Bank of India with India Post for better clarification of investors to make a conclusion.
State Bank of India (SBI)
With a minimum deposit amount of Rs. 1,000/- and thereafter in multiples of Rs. 100/- with no upper limit one can open a fixed deposit account at SBI for a tenure ranging from 7 days to 10 years. The account holder receives interest on a Term Deposit quarterly or at maturity from the date of issuance, including the principal amount. In the event of Term Deposits with terms of twelve months or more, interest can also be paid monthly, half-yearly, or annually. One can make a nomination in favour of an individual only and also can transfer his or her account from one bank branch to another. TDS is mandated by the Income Tax Act and hence the depositor can file Form 15G/15H to claim an exemption from tax deduction under the regulations of the Income Act. With effect from 08.01.2021, SBI has revised interest rates on its fixed deposits which are as follows:
|Tenors||Revised Rates For Public In %||Revised Rates for Senior Citizens|
|7 days to 45 days||2.9||3.4|
|46 days to 179 days||3.9||4.4|
|180 days to 210 days||4.4||4.9|
|211 days to less than 1 year||4.4||4.9|
|1 year to less than 2 year||5||5.5|
|2 years to less than 3 years||5.1||5.6|
|3 years to less than 5 years||5.3||5.8|
|5 years and up to 10 years||5.4||6.2|
|Source: Bank Website|
Post Office Time Deposit Account
A single account, joint account for up to 3 adults, an account on behalf of a minor above 10 years, or an account on behalf of a guardian on behalf of a person of unsound mind can be opened at your nearest post office. This post office time deposit account can be opened by depositing a minimum of Rs 1000/- and in multiple of 100 with no upper limit for a deposit period of 1 to 5 years. The applicable interest shall be payable annually and on a 5-year time deposit depositors can also seek tax benefits under section 80C. The latest interest rates on time deposits of India Post are listed below.
Where should you invest?
Amid the record low-interest rates on term deposits of banks, it is not recommended to invest in fixed deposits for the long-term. The reason behind the same, under fixed deposit investments the risks that you need to keep in mind are rising inflation risk and interest rate risk. Inflation has a direct influence on your investments and currently State Bank of India (SBI), for example, offers a low-interest rate of 5.4 percent on 5-10-year FDs.
If you rely entirely on the income from your SBI fixed deposit account to pay your expenses, you will receive zero returns if inflation remains high between 5.94% and 6.1%. As a result, it is better to go for the Post Office Time Deposit account with an interest rate of 6.7% only if you have a long-term goal. Or else regular investors can also invest in Reserve Bank of India floating rate bonds, or fixed deposits of small finance banks or non-banking financial companies (NBFCs) for diversification and resulting in inflation-beating returns.
Whereas senior citizens can continue to invest in popular schemes such as Senior Citizen Savings Scheme (SCSS) or Pradhan Mantri Vaya Vandana Yojana (PMVVY) with an interest rate of 7.40% to beat inflation. Now there's another risk to consider: interest rate risk, which is impacted by a variety of economic fundamentals as well as RBI policies.
A change in the RBI's repo rate permits banks to raise deposit interest rates, therefore it's a good idea to invest in fixed deposits for the near or short term. If you invest for the long term, you will not benefit from a higher interest rate if RBI hikes repo and reverse repo rates. And if you withdraw early, you will be charged a penalty, which implies an undesirable deduction from your relevant interest rate.
So it is better to invest in a fixed deposit for short term where RBI has kept the repo rate at 4% only. As of now, to witness higher returns both in short-term and long-term you can invest in fixed deposit schemes of government-owned companies which can give you an interest rate of up to 8% with a cumulative option.