Shift idle funds to FDs, earn over 2.5 times of savings rate

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The fixed deposit rates have been rising for almost 6 months now and have a big gap-up with savings deposit rates. So if you have a large sum of money in a savings account and want to get better return than the 2.5-3% offered by banks, move it to a fixed deposit.

Suppose you have Rs 1 lakh in savings account, you would receive between Rs 2,500-Rs 3,000 as interest on annual basis, depending on the bank. Whereas, if the amount is invested in a fixed deposit for a year, it would have earned a return of Rs 6,975 at the rate of 6.8%. By investing in FD for two years, it could have earned Rs 14,888 at 7% and Rs 21341 in three years at 6.5%. Fixed deposits provide a higher return than savings accounts for a specific time limit

The Reserve Bank of India  began increasing interest rates in May 2022. In the past one year, the RBI has increased  repo rate by 2.50%. This is the interest rate at which RBI lends money to other banks. Due to repo rate hike, banks have also increased deposit interest rates.

People used to get 4.50 to 5% rate of interest on fixed deposits. Now, FDs are giving returns of 6.5 to 7 percent…

What do RBI’s figures say?

Fixed deposits are a good means for banks to collect money.  banks offer higher interest rates on FDs and make arrangement for money for a specific time limit. Banks kept the interest rates low on savings accounts and increased interest rates on FDs so that people lock their money in FDs.

As per RBI’s data, there has been an increase of 13.2% in FD deposits with banks in March 2023. Whereas deposits in savings account have increased by approximately 7.3%.

Interest Rates: FD Vs Savings Account

SBI is offering 6.80% interest on a one-year fixed deposit. Whereas, you will get interest of 2.7% on keeping money in a savings account for a year. HDFC Bank is offering 6.60% interest on  one-year FD, whereas the interest rate on savings account is less than half of it, i.e., 3%. Similarly, ICICI Bank offers 6.70% interest on a one-year FD. While, you will get only 3% interest on savings account.

Things to keep in mind while investing in FDs:

If you invest in FDs now, you will be able to lock in your money at high interest rates for the future. Even if interest rates fall, the rate at which you invest in FDs today will remain the same throughout the tenure.

Do not invest all your money in a single fixed deposit, instead divide it into different FDs of different tenures. So, in case of emergency, you will only have to break the FD that has the required amount of money.

Similarly, instead of opening FDs in the same bank, open in different banks. This is because even if one bank faces a crisis, you will not lose all your mone.  Deposits of up to Rs 5 lakh remain protected in case the bank runs into crisis.

Do not keep more money  in your savings account than that you require for two months of expenses. Especially, at this point of time when the interest rate on FDs is higher. It is better to put it in an FD instead of just keeping in the savings account. This way, your money will remain safe. Plus, you will also get better returns.  You need to make a decision on FDs quickly… In the monetary policy meeting in April, RBI kept the rates unchanged. It Is being speculated that interest rates will not increase anymore. So this is a good opportunity. Before the bank starts reducing the interest rate on FDs. You can also invest in corporate FDs. You can get higher interest rates there also.