Should you invest your money in an FD at high interest rates now?

• FD interest rates, influenced by factors like the RBI’s policy repo rate, are likely to remain relatively high during the first half of 2024
  
• Broader, macroeconomic signs suggest that we may be approaching the end of this high interest rate cycle
  
• People looking to park their money in FD for 2-3 years for their debt portfolio can use this opportunity to lock in their FD at current interest rate levels
  

Last Friday, the Reserve Bank of India (RBI) kept the repo rates unchanged seventh time in a row at 6.5%, as expected by industry experts. The last time it had raised rates was in February 2023, when it had raised the rates by 25 bps to 6.5%. This had pushed the rates on fixed deposits to a high in about 5 years, which came as good news for those who invest in FDs.

“FD interest rates, influenced by factors like the RBI’s policies such as the repo rate, are likely to remain stable when the repo rate is unchanged,” says Adhil Shetty, CEO, BankBazaar.com, a fintech portal. Co-operative banks would be offering an even higher rate of interest on FDs.

Bank FD interest rates (%)
Bank	<1 year	1-2 years	2-3 years	3-5 years
Bank of Baroda	7.1	7.15	7.25	6.5
State Bank of India	6	7.1	7	6.75
UCO Bank	5.5	6.5	6.3	6.2
Union Bank	5.75	7.25	6.5	6.5
Axis Bank	6	7.2	7.1	7.1
HDFC Bank	6	7.25	7.15	7.2
ICICI Bank	6	7.2	7	7
Data as on respective banks’ website on 05 Apr 2024; For each year range, the maximum offered interest rate is considered; interest rate is for a normal fixed deposit amount below ₹1 crore. Source: BankBazaar.com

Should you lock your money in FDs?

Retail inflation in recent months has eased down to 5% whereas RBI has kept the repo rate at 6.5%.

“While there is some anticipation of rate cuts by the end of 2024, the RBI seems inclined to adopt a wait-and-see approach before initiating a rate cut cycle,” says Sujan Hajra, chief economist & executive director at Anand Rathi Shares and Stock Brokers. But experts sense that a rate cut is coming soon.

“It looks like we are at the end of the interest rate hike cycle unless inflation starts going up. So people looking to park their money in FD for 2-3 years for their debt portfolio can use this opportunity to lock in their FD at current interest rate levels,” says Abhishek Kumar, founder and chief investment advisor at SahajMoney, a financial planning firm.

Agrees Shetty, “This stability benefits FD investors, especially those seeking predictable income streams, such as retirees and conservative investors prioritising capital preservation and regular earnings.”

Once retail inflation stabilises or starts going down further in the coming months RBI is expected to start cutting repo rate. While it could be good news for the markets and may boost consumption further, it could also make banks reduce interest on FDs immediately after.

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