Fixed Deposit Rates on a New High: Is it Time for Investors to Set Sight on Them?

In the context of banks raising their fixed deposits (FDs) interest rates, investors can consider parking some of their savings in this particular investment instrument to make the most of the current high interest rates. 

Notably, most private and state lenders have recently hiked their interest rates, while some have unveiled special interest schemes. 

Two crucial benefits arise from locking your savings in the FDs at the current interest rate. First, the interest rates have spiked considerably in the past few months due to the Reserve Bank of India’s monetary policy. Second, the interest rates will likely fall towards the end of this calendar year. In that regard, before the interest rates start to dip again, it is suggested to lock the prevailing rates.

Investors whose financial goal is 2-3 years away can consider locking the required amount in an FD, considering there is less likelihood of any further spike in interest rates.

Experts state that considering there were constant small increases in the interest rate by the RBI, investors were postponing, making FD anticipate a high-interest rate. However, for the past 2-3 quarters at present, the hike in interest rates has come to a pause. 

Moreover, there is not much hope of any hike in the FD rate in the future. There is a strong possibility that after the first 2-3 quarters of 2024, the interest rate will start experiencing a dip.  So, if your financial goal is 2-3 years, you can consider locking the requisite amount in an FD now. 

Additionally, investors may consider FDs pairing them with debt instruments as viable investing options for the current high interest rates.

Experts maintain that considering the prevailing interest rate cycle, which has reached its peak, it seems wise for investors to focus on long-duration investments and securing the higher interest rates provided by FDs and other debt instruments. 

Another factor is that as global central banks mull potential interest rate cuts in 2024, investors are likely to find a strategic advantage in maintaining long-term positions in FDs and debt instruments, making the most by capitalising on prevailing higher interest rates before any anticipated adjustments.

Lastly, investors are advised to act with due diligence and not go overboard. The current interest rates on FDs are lucrative, but it will be wise not to get tempted to lock a significant chunk of the corpus in them. 

It is important to remember that FDs are taxable and fail to generate inflation-hedged returns in the long run. While acting with discretion, an investor is advised to take a proper call depending on the required asset allocation of their financial goals.