Fixed deposit (FD) investors will have to continue to wait for interest rates to rise as the Reserve Bank of India (RBI) again maintains status quo on key rates. In its bi-monthly monetary policy review meeting on October 8, 2021, reserve Bank of India It has been decided not to change the repo and reverse repo rates. As a result, repo rate And the reverse rate will remain at 4% and 3.35% respectively. It has been more than 16 months since the last change in the repo rate – it was reduced to 4% on May 22, 2020, the lowest since April 2001.

Interest rates on FDs are at many-year lows as banks and NBFCs have been reducing rates in the last two years.

However, things may change going forward. The central bank has been working to strike a balance between economic growth and inflation. As the Corona-related restrictions have badly hit economic growth, RBI’s focus so far has been on reviving growth. Shanti Ekambaram, Group President, Consumer Banking, said, “Economic activity has seen a decent pick-up and this is evident in almost all high-frequency indicators. Consumption demand is also picking up and is expected to pick up during the festive season.” , Kotak Mahindra Bank.

Inflation is a matter of concern. “Inflation has moderated since the last policy, however, supply side constraints and fuel growth are likely to lead to inflation. Some global factors such as China and the UK and a reduction in the Federal Reserve indicate a rise in crude oil prices. There is a possibility that the tapering off by the end of the year could lead to volatility. MPC All these factors will be monitored, with domestic growth and inflation likely to guide its policy stance. If the green shoots of economic recovery continue, it is possible to expect some moves on liquidity and reverse repo in the latter part of the year,” says Ekambaram.

In such a scenario, some smart steps can help FD investors make the best use of the current scenario. Here’s how FD investors can increase the returns on their deposits.

Short term deposit rates may increase earlier

Whenever the interest rate cycle makes a downward U-turn, it is usually the short to medium term interest rates that are likely to rise first. As far as long-term interest rates are concerned, it will take a little longer for these rates to rise significantly.

Avoid locking the deposit for a longer period at a lower rate

If you are planning to book an FD now or looking to renew your existing FD, it is better to go for a shorter term deposit of one year or less, so that your deposit remains at a lower rate over the long run. But don’t lock. You can start increasing the tenure of the FD as per your wish, whenever the rates of short to mid-term increase.

Build an FD Ladder to avoid Lowest Returns

If your deposit is ready for renewal in the current scenario, when the interest rate cycle is nearing its lowest point, it can be a stressful situation. However, you can avoid this by creating an FD ladder. To do this, you need to split a large FD into smaller FDs, and book them for different tenors. You can do this in such a way that one FD matures every year.

For example, if you have an FD of Rs 5 lakh, you can split it into 5 parts and book 5 FDs of different tenors of 1 year, 2 years, 3 years, 4 years and 5 years Huh. After one year, when the one year tenure FD matures then it is renewed for 5 years. Your 2-year FD will mature after two years, so you can renew it for the next 5 years. Now repeat this exercise every year and your ladder will be ready. This will ensure that all your deposits are not locked at the same time at the lowest interest rate and your average returns are at a high level.

Consider floating rate options

If you don’t want to take any chances against a fluctuating interest rate cycle, floating rate FDs and floating rate bonds are good options if you want to lock your funds for a longer period.

Here’s how a floating rate FD can help you

Many banks and non-banking financial companies have started offering floating rates. Fixed deposit. The interest rate on such deposits is linked to a benchmark and the interest rate moves with the fluctuations in the benchmark rate.

For example, Indian Overseas Bank offers floating rate FDs with tenures of 3-10 years. It has taken the daily average of 5-year G-Sec rate and 10-year G-Sec rate for the last six months as benchmarks for tenures of 3-5 years and 5-10 years respectively. As per the data provided by RBI, the 10-year G-Sec yield as on September 24, 2021 was 6.21%, which is much better than the previous year. FD Rates Most of the big banks.

If you are not a senior citizen, the best interest rate you can get from a big bank would be around 5.25-5.5%. For example, SBI is offering an interest rate of 5.40% on FDs ranging from 5 years to 10 years.

Hence, the floating rate option is offering a better interest rate of 6.21% (if the 6-month average is also the same) in the current scenario. Once the overall interest rate landscape changes and rates start rising, depositors will get the real benefit of floating rate FDs as the interest rate on these FDs will also go up.

Invest in RBI’s floating rate bonds for non-cumulative deposits

If you are a senior citizen and looking for an option that will provide you regular income, then you should go for RBI floating rate bonds. This bond is currently giving returns of 7.15 per cent, which is higher than bank FDs. It has a tenure of 7 years and pays interest half yearly. Though senior citizens have better options like SCSS and PMVVY, they cannot invest more than Rs 15 lakh in each of these two options. Hence RBI floating rate bonds are a good option for senior citizens who have exhausted their investment limit in SCSS and PMVVY.

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Government launches 7.15% floating rate bonds: Here’s everything you need to know