Bank fixed deposits (FD) are one of India’s most popular and safe investment products. Investors of all ages prefer to include FDs in their investment portfolios as they offer assured and attractive returns over the long term. Once your interest rate is locked in the FD tenure, you need not worry about the market volatility affecting other financial instruments.
How to look at FDs now?
Market conditions are improving with economic recovery after the slowdown due to the ongoing pandemic. At present, you can earn as high as 7% on your bank FDs.
Will FD rates increase in 2022?
Experts are expecting that the FD interest rates will increase further. The policy rate hike cycle that started in May 2022 is on a roll. The Reserve Bank of India (RBI) and Monetary Policy Committee (MPC) recently increased the repo rate by 0.50% to tame rising inflation during the monetary policy meeting in August 2022. The next meeting is scheduled for the end of September 2022, and another hike in the policy rate is expected.
Banks start increasing the fixed deposit interest rate whenever policy rates start rising. Economic experts find room for growing rates, and FD interest rates might breach the 7% mark.
FD investors can expect better days ahead as an era of low FD rates is expected to get over.
How can FD investors reap the maximum benefit?
- Ladder your FDs: You can ladder FDs by investing in multiple FDs with different tenures to maximise returns. It helps you take advantage of increased interest rates. Suppose you invest in an FD of 6 months tenure. After completing the tenure, you can reinvest the funds at a higher fixed deposit interest rate. For example, if you divide your funds of 6 lakhs into 2 FDs with different tenures, say six months and one year. In the scenario of rising policy rates, you can reinvest the funds after six months in an FD offering a higher interest rate.
- Prefer Cumulative FD: You can increase FD returns with the power of compounding. It allows you to reinvest the accrued interest on FD every year. You will receive the accumulated interest at maturity with the invested capital. It will help wealth accumulation as the interest is reinvested every year.
- Use Fixed Deposit Calculators: An FD calculator allows you to calculate your returns before investing your funds. You can determine the amount you should invest to achieve your financial goal. Fixed deposit calculators help you to invest the right amount for the right tenure to get the maximum returns. A higher amount for a longer tenure can increase your returns. Also, a senior citizen FD can offer you an additional fixed deposit interest rate of 0.50% over a regular FD.
Thus, considering the rising interest rate environment, individuals can expect increased FD return rates. You can split up your FD into small tenure FDs, say six months, with a rollover option for a higher return.