If you are about to invest in fixed deposits (FD), you are likely reading the annual FD update articles of your financial institution regarding your financial planning. The country’s private sector bank, Yes Bank, has recently reduced the FD rates up to 0.25% (25 basis points), thereby disappointing several conservative investors who just want interest.
Why does this affect you?
Fixed deposits are considered the safest havens for all risk-averse investors because they guarantee a return and uphold financial security. In its latest modification, Yes Bank reduces its maximum interest rate from 8% to 7.75% in fixed deposits for a period of tenure of 12 to 24 months. For senior citizens under such deposits, the new reduced rate is 8.25%, down from 8.50%, for that period.
This cut could probably start an industry trend, more so considering that this may happen if the Reserve Bank of India (RBI) cuts the repo rate in its next MPC meeting. If this happens, banks will follow suit, and FD rates will decrease all over the industry.
Latest Yes Bank FD Rates at a Glance
General Public (Below ₹3 Crore)
- 12-24 Months: 7.75% (down from 8%)
- 24-60 Months: 7.25% (down from 7.50%)
Senior Citizens (Additional 0.50% Benefit)
- 12-24 Months: 8.25% (down from 8.50%)
- 24-36 Months: 7.75%
- 36-60 Months: 8.00%
What Should FD Investors Do Now?
Considering downward movement in interest rates, it would be prudent to lock in funds at the current rates before they go down further. Here are some things to consider:
- Compare Bank Rates – Check out other banks for higher FD returns before investment.
- Look into Alternative Investing – If you are willing to take a little more risk, opt for debt funds or corporate FDs (having good ratings) which could give better returns.
- Ladder your FDs – Invest in multiple tenures to balance liquidity and returns.
Wider Perspective: Are Bank FDs Still Worth It?
While FDs still offer safety from default, the interest rate on FDs is declining, compressing inflation-beating returns. If your income depends on FDs, it is high time you keep an eagle’s eye on changes in bank policy and decisions by the RBI.
Conclusion
Yes Bank’s rate cut has accompanied a warning to FD investors. The funds will need their undivided attention since adequate research aims to maximize returns with a diversified portfolio in the era of declining interest rates.