Fixed Deposit Rates Down. Should you lock-in or look for Alternatives?

Fixed Deposit Rates
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Fixed Deposit investment is considered by investors mainly because of its safety. There are various benefits that are attached to a fixed deposit, these include secured returns, earnings through interest, and tax exemption. Due to the demonetization, the fixed deposit has hit a major stumble block due to a falling rate of interest. However, the interest rates are reviving in the recent times.

Among all the financial institutions there are only several Non-Banking Financial Companies (NBFCs) which are still offering a higher rate of interest to their customers. The banks and other financial institutions have set their fixed deposit interest rates to 6-6.5%, which is far less than the ones NBFCs are offering. Thus, if you are looking forward to investing in a FD Scheme, do not hesitate to try your luck with highly-reputed NBFCs.

Why are the rates declining?

One of the major reasons for this is increased liquidity. Demonetisation has resulted in an increased cash deposit by the customers. Now an increased influx of cash in such a large volume means that the funds are to be sent to the customers too. A cut in the rate of lending rates is proceeded by a cut in the rate for deposit.

The newly introduced Marginal Cost of funds based on Lending Rate (MCLR) has been instrumental in the current fixed deposit rate. MCLR has to be announced every month and it helps in determining the lending rates for the customers. Such is the relationship between MCLR and deposit rates that if there occurs a decline in deposit rates then it results in a decline in MCLR too.

Speaking of NBFCs, these financial institutions offer flexibility. They are offering interest rates worth considering. So, should you opt for a fixed deposit at a time when interest rates are at an all-time low? Primarily Yes. You should lock-in fixed deposits now as the rate of interest won’t be increasing anytime soon. The rate of interest being offered right now is over 8%. You should make the most out of it if you are looking forward to considerable secured returns.

It is important to know that government has laid emphasis on “Housing For All’, a goal which it aims to achieve by 2022. Housing for All has proved to be a boon for home buyers as they can avail home loans at an attractive rate of interest. However, this has not had a positive effect on the people who are looking to invest in safe avenues. As a result of this, the fixed deposit rates have been brought down while the savings rate have been kept still at 4%.

Furthermore, various banks and other financial institutions will cut the rate even further to improve their margins. And that is the reason why the different rate of interest is being offered by various Financial Institutions under the deposit of INR 1 lakh. That is not the case with some well-known NBFCs as they have kept the rate similar irrespective of the deposit amount.

Thus, it is essential to make sure that you do your research and invest properly. Fixed Deposit rates might be low but in order to make the most out of it, it is essential to invest your lump sum amount before the rates fall further. When it comes to the fixed deposit investments, the fixed deposit interest rates offered by NBFCs should be given due consideration before deciding which financial institution you want to opt for.

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