Should You Put Money In FDs At Current High Interest Rates?

Starting December 13, 2023, ICICI Bank made changes to its fixed deposit (FD) rates for deposits between Rs 2 crore and Rs 5 crore. The new rates start at a minimum of 4.75 per cent for tenure of seven to 14 days and go up to 7.25 per cent for a period ranging from 390 days to 15 months. Meanwhile, Kotak Mahindra Bank increased its FD interest rates by up to 85 basis points. Customers of Kotak Mahindra can now earn a maximum of 7.80 per cent on FDs for senior citizens with tenures spanning from 23 months to two years.

HDFC Bank also revised its FD interest rates for deposits exceeding Rs 5 crore, effective December 13. The rates now range from 4.75 per cent for seven to 14 days to 7.30 per cent for one year to 15 months. Notably, for FDs ranging from Rs 100 crore to Rs 500 crore, the interest rate has been adjusted to 7.30 per cent from the previous 7.35 per cent.

Should You Lock In Your Money? 

Banks had anticipated the move of the Reserve Bank of India (RBI) to maintain the repo rate for the fifth time in a row. As a result, the interest rates on deposits offered by various banks have been revised earlier this month.

Abhishek Kumar, a Securities and Exchange Board of India (Sebi) registered investment advisor (RIA), and founder and chief Investment Advisor of SahajMoney, a financial planning firm said, “The interest rate cycle is still not on a downward cycle as the latest inflation number also went up. So, RBI might play Goldilocks and keep the repo rate steady for a while. This presents an opportunity for people looking to lock money at higher interest rate deposits.” 

Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm agreed and said, “Where an investment plan requires allocation in debt, one may park money in bank fixed deposits as exposure in debt and lock the clock till maturity.” 

“The idea is not to chase the highest interest rates but to take advantage of the interest rate scenario while maintaining the required exposure to debt as part of the asset allocation strategy,” Sen added.

Interest rates for shorter tenures could be higher. “The tenure should be longer to lock rates even if it means the rates are relatively lower than a shorter tenure,” Vivek Rege, founder and CEO, VR Wealth Advisors, an investment management, financial planning, and consulting firm said. 

However, Sen warns that maintaining asset allocation as per investment strategy is crucial to achieving one's financial goals in life. Just because the interest rates have been raised/revised, it would not be wise to get over-exposed to any specific asset class. The asset allocation strategy should be ideally based on investment objective, investment time horizon, risk profile, and macroeconomics.