Banks have dropped their interest rates alarmingly in the last few weeks. In fact, some NBFCs like Bajaj Finance which were offering decent interest rates have also reduced their interest rates. At the moment, it's very difficult to get good interest rates. However, IndusInd Bank, is still offering a pretty decent interest rate and it is highly possible that this bank too may drop its rates.
Take a look at a quick comparison:
|1-2 years||2-3 years|
|Bank of Baroda||5%||5.10%|
|Post office time deposits||5.5%||5.5%|
IndusInd Bank deposits are relatively safe in comparison to smaller banks and only recently the bank posted a good set of quarterly numbers. Bank deposits of upto Rs 5 lakhs are also guaranteed by the DICGC, which means there is protection unto this sum. Not that there could be issues, but, the way things are panning out these days, 100% assurance is something that cannot be guaranteed. Recently, the bank's quarterly net profits soared to Rs 870 crores, which was a growth of 190 per cent over the corresponding period of last year.
Invest for shorter term duration
We believe that interest rates would remain stable in the shorter term and could rise in the more longer term. It is therefore advised to invest for the more shorter term, with a tenure of around 1-2 years.
Once invested, if an individual breaks his deposit to reinvest then there are charges applicable on breaking the deposits. The world over there are now worries of inflation, which should see interest rates trending higher. In India too at some point the Reserve Bank of India may have to hike interest rates.
At the moment we believe that interest rates are just too low and for individuals, who are looking at returns from Fds, it is a massive disadvantage. In the more longer term, it is possible that interest rates could move higher. In the meantime, investors may invest in fixed deposits with a more shorter term duration.
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