How to shield FD at current bank interest rates?

How to shield FD at current bank interest rates


The rate of interest on investment schemes like Fixed Deposits, PPF and other small investment schemes have experienced a gradual decline, and it is expected that these rates would further slow down, given the state of the market and unprecedented economic conditions. To tackle these volatile market conditions and to ensure liquidity in the market, the Reserve Bank of India (RBI) is reducing the Repo rate which in turn has affected the rate of returns on fixed deposits. In the last 60 days, the country’s largest public sector bank, State Bank of India has slashed its FD interest rates, and the trend is followed by other public sector and private sector banks as well.

Should you invest your money in fixed deposits?

 With the country facing a severe recession worse than the 2008 economic crisis, there is a panic among investors to invest their hard-earned money. The prices of commodities are rising; the economy has come to a standstill, international trade, prices of oil etc. have also been impacted in unexpected ways. The worst part is that no one cannot predict when we would recover from such a crisis and when our lives would eventually come to normal.

Here are some ways to shield your Fixed deposits with the falling FD rates?

In such a scenario having an emergency fund that would provide growth, liquidity and safety of funds to tackle the financial distress is a need of the hour. Thus, if you are also in a dilemma about what you should do with your FD and should you invest in a fresh FD, here is what you should do.

It is vital to understand that if you are investing in a fixed deposit, you must first compare the FD rates of various Banks, Small Finance Banks and Non-Banking Financial Institutions. You must, however, not just look for higher returns/rate of interest. You must choose the lending institution that also provides assured returns given the present conditions of the economy. Always invest in institutions that have AAA credit ratings as it would ensure that the money invested in FD is safe.

Also, you must not just look to invest in FDs of popular commercial banks. Various small finance banks provide higher rates of interest than the big private banks. Presently, Jana Small Finance Bank provides returns at 8%. If you are worried about the credibility of the Small Finance Banks, then you must know that the funds invested in an FD are assured upto Rs. 5 Lakhs with an insurance cover provided by RBI subsidiary, Deposit Insurance and Credit Guarantee Corporation. Thus, you can invest upto Rs. 5 Lakhs with such lending institutions without a worry.

Further, if you wish to invest funds for amounts higher than Rs. 5 Lakhs then you must invest in multiple FD of private and public sector banks and Non-Banking Financial Institutions that have higher credibility.

Here are some checklists to maximize returns on your investments in present scenario:

  • Don’t break your existing Fixed deposits as the rate of interest on FD was comparatively higher earlier.
  • If you want to invest in a new FD, then invest in a shorter FD of upto 1 year.
  • Invest in FD of Small Finance Banks upto Rs.5 Lakhs to get insurance cover.
  • Don’t spend your entire amount in a single FD. Invest in multiple FD to get tax exemptions on Interest Income.
  • To get tax benefits, you can invest in a Tax-Saving FD of 5-year tenure.
  • Investing in fixed-income instruments like debt funds is not a good idea.
  • Maintain a balance between returns and risks.

Conclusion: The bottom line is even with the falling FD rates, fixed deposits are still a good option for investment if you strategize your investment carefully among multiple, smaller FDs and ensure a balance between returns and risks.


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