The good old fixed deposit has always remained one of the most popular investment products for Indians of all hues. The lure of safety and assured returns is hard to avoid for most. Recently, amidst the Independence Day celebrations, public sector banks such as SBI (State Bank of India) and BoB (Bank of Baroda) came up with special fixed deposit schemes (for up to ₹2 crore) with higher interest rates for investors. This follows the RBI’s recent 50 basis points rate hike. Also, the growth in bank credit is outpacing that of deposits. Therefore, to fund retail loans during the upcoming festive season, these banks are attempting to offer attractive FD schemes.

What’s on offer

BoB has come up with a special Tiranga FD for two tenures – 444 days and 555 days. The bank has indicated that callable deposits (where withdrawal can be done before maturity) will be given interest rates of 5.75 per cent and 6 per cent respectively. Non-callable deposits (where premature withdrawal is not possible) will carry a higher interest rate of 15 basis points. The offer is available until December 31. BOB doesn’t charge penalty for pre-mature withdrawals of up to ₹5 lakh. For the ₹5 lakh to ₹1 crore window, 1 per cent is charged as penalty and beyond that it is 1.5 per cent. For similar tenure, certain banks have come up with increased FD rates. Some of them are Canara bank with 6 per cent for 666 days, Axis bank with 6.05 per cent for 17-18 months, Indian Overseas Bank with 5.6 per cent for 444 days, and Indian Bank with 5.4 per cent for 1-2 years. For similar tenures, some private banks such as IndusInd bank, Bandhan Bank and IDFC Bank and a few small finance banks provide even higher interest rates in the range of 6.5-7 per cent.

Earlier, SBI came up with a special FD scheme called SBI Utsav Deposit, which is open till October 30. So, investors as offered the FD with a tenure of 1,000 days at an interest rate of 6.1 per cent. SBI charges pre-mature withdrawal penalty of 0.5 per cent up to ₹5 lakh and 1 per cent beyond that for all tenures. For similar tenures, some banks have come up with increased rates such as PNB with FD rate of 5.75 per cent for 1,111 days, HDFC Bank with 6.1 per cent for 3-5 years and Kotak with 5.9 per cent for 3-4 years. Similarly, some of the private banks and small finance banks provide interest rate of around 7 per cent for 3-5 years tenure.

What should you do?

In 2022 so far, there have been three instances when RBI has increased the repo rates and more rate hikes are expected in upcoming monetary policies. If these hikes do indeed happen, investors can get better opportunities to invest in FDs at higher rates. So, we believe investors can park a portion of their money in fixed deposits with tenure of 1-2 years now and that too in quality private and small finance banks’ deposits. These provide higher interest rates compared to the Independence Day special deposits by public sector banks, which don’t offer anything special on this part. Also, scheduled commercial bank deposits are safe as all deposits of up to ₹5 lakh are covered under the deposit insurance scheme of the DICGC. Even in extreme cases as it happened with Yes Bank, the RBI has stepped in to prevent any run. Those who are satisfied with lower interest rate and are exclusively looking for public sector bank deposits on account of safe returns, can consider investing lower amounts in BoB Tiranga deposit scheme on account of its short tenures.

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