Bank deposits regain popularity after hike in interest rates

After the increase in inflation the fixed deposit rates have become negative. Fixed deposit was no more an attractive investment option. Recently banks hiked deposit rates after RBI hiked its rates, because of this fixed deposits position has become better.

Banks have increased interest rates on FDs for one year and above. But interest rate on time slab less than three years is now around 9.5–10 per cent which was around seven per cent six months ago. Over the past few months the equity market position has become highly volatile therefore investors are looking for stable options.

Most of the public sector banks are offering 9.5 per cent on one-year deposits. While the new generation bank IndusInd Bank has launched a scheme offering as high as 10 per cent returns for a 400-day deposit.

According to Mr Saumitra Sen, head of branch banking, IndusInd Bank, “Fixed deposits are a much safer asset class for retail investors, for a one year horizon, given that the Sensex is down.” Banker stated some of the existing depositors are opting for ‘premature renewal’ of their existing deposits at higher rates.

Corporation Bank is offering 9.6 per cent on a 400-day deposit from July 8, and this offer is for a limited period. The minimum deposit amount is Rs 25,000 and maximum is Rs 15 lakh. According to a senior bank official on less than 10 days, the bank has earned around Rs 500 crore.

The official informed, “Given the high inflation, the rates may not be very good, but in the current circumstances, they are better than equity or mutual funds. We may extend the time period for the scheme, because I don’t envisage rates to come down in the near future.”

Another PSU bank Union Bank of India has raised Rs 6,000 crore from the 9 per cent 400-day deposit scheme. Bank launched scheme on April 10 till the first week of July, and currently the scheme has been discontinued. As per the revised rates the bank is offering 9.5 per cent for a deposit of over one year.