Have spare cash? Lock into higher FD rates now

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Though the Reserve Bank of India is widely expected to hold onto key policy rates at least before they start lowering it, a few banks have already started inching it down on FD rates signalling a tentative beginning.

With liquidity improving and shorter money market rates climbing down, some commercial banks have started trimming interest rates on fixed deposits carrying maturity periods of up to three years. According to a report in the Businessline Punjab National Bank, Union Bank and private lender Axis Bank have cut interest rates on FDs.

ICICI Bank has also pruned interest rates on high value FDs ie. those which entail deposits more than Rs 2 core.

The rate cuts are in the range of 5-20 basis points.

Interestingly, the rate cut by these banks have taken place at a time when smaller banks are hiking interest rates on fixed deposits. While the smaller banks want to utilise the interest rates as a means to expand their capital base, the larger entities like PNB, Union Bank, Axis Bank and ICICI Bank that are initiating the rate cuts have a comparatively far larger base.

PNB has trimmed interest rate from 6.8% to 6.75% on FD under Rs 2 crore of 1-year tenure.

For FDs of maturity period between 1 year 25 days and 30 months, the rate has been trimmed from 7.10-7.15% to 6.80-7.10% by Axis Bank. The new rates are applicable up to deposits of Rs 5 crore.

ICICI Bank has cut rates on FDs of maturity period between 15 months to three years. The dip has been from 7.00-7.15% to 6.75-7.00% on FDs with deposit amounts Rs 2-5 crore.

The new rate of Union Bank is 6.5% in place of 7.3% on FDs carrying tenures of 3 years for deposits up to Rs 2 crore.

Also, system liquidity had turned surplus in April riding on government expenditure and RBI’s interventions. Liquidity was in the deficit at the end of 2022-23. The withdrawal of Rs 2,000 currency notes has also helped improve liquidity. The step was announced on May 19 and the SURPLUS liquidity in the banking system is currently estimated to be around Rs 2.4-lakh crore.