Time to lock our money in bank FDs

Investors looking at high returns on deposits should soon lock their money with banks since interest rates on retail deposits have peaked.As mentioned in my last post that repo rates have been cut down which indicates that this is the beginning of a soft interest rate regime. Further, it is being said they would first lower their deposit rates and then reduce lending rates. This indicates that banks may come under pressure to reduce deposits rates. Currently, most banks are paying a maximum rate of 10.5% for one to less than three years while senior citizens are entitled for 11%. Interestingly, the 10.5% offered on deposits for three years was last offered in 1999-00, following which the interest rate cycle began to turn southwards. Rates had fallen sharply to 5.25-5.50% in 2003-04. The country’s largest housing finance company, HDFC, offers as high as 10.90% for 30 months if an individual deposits Rs 1 lakh and above. While for deposits below Rs 1 lakh, HDFC offers 10.55%. Although 10.5% for 390 looks attractive, ideally, a depositor should invest in long-term deposits like 890 days. This will help them avoid a negative impact of lower interest rates. This means that if a depositor parks his money in long-term deposits, even if the interest rate cycle turns, the depositor would gain. The highest rate on longest tenure is 10.5% offered by India’s largest bank, SBI, which is for 1,000 days.