Last week RBI said that consumer price Index (CPI) based inflation is now projected at 5.3 per cent for 2021-22 with risks evenly balanced.
At this stage, the country’s largest lender has a fixed deposit for one year.
(SBI) would rather earn negative interest. The real interest rate for the saver will be (-) 0.3 percent.
The real interest rate is the card rate minus the inflation rate. Retail inflation stood at 5.3 per cent in August.
Even for the higher tenure of 2-3 years, the interest rate earned is 5.10 per cent lower than the inflation expected for the current financial year.
In the private sector, market leader HDFC Bank offers an interest rate of 4.90 per cent for fixed deposits of 1-2 years while 5.15 per cent for 2-3 years.
However, small savings schemes run by the government provide better returns than the fixed deposit rates of banks. For fixed deposits of 1-3 years, the interest rate offered is 5.5 per cent higher than the inflation target.
There is a natural advantage of taking money from bank FD The rates are slightly higher for government savings schemes. Thus, the real interest rate is in positive territory.
Experts said it is a common phenomenon that real returns are negative in the post-crisis and recovery world, given the fiscal stimulus to overcome hardship.
India is no exception and in fact, new asset allocation patterns will need to emerge, with more allocation from financial assets to real assets.
Vivek Iyer, Partner, Grant Thornton India, said that real rates are going to be negative for some time, given that post-crisis recovery may take some time and it is imperative that financial literacy initiatives help people make the right investment choices. guide me.
“A negative rate of interest for savers on bank deposits is, these days, a reality that depositors have to face due to complicating factors.
Jyoti Prakash Gadiya, Managing Director, Resurgent India said, “The current average savings deposit rate offered by banks, which is around 3.5 per cent and less than five per cent on one-year deposits, indicates negative returns, even That doesn’t even cover the expected inflation rate.”
The impact of negative interest on bank savings deposits is evident, with low growth of such deposits and the public is now looking for alternatives like mutual funds and equities for better returns.
Gadiya said that however, the higher risk options have shown phenomenal growth which is likely to continue till inflation is contained or bank deposit rates rise significantly.