Rate hikes on bank fixed deposits are not over yet

More banks are expected to increase fixed deposit (FD) rates in the near future as inflation continues to be a cause of concern. In fact, even after this hike, there is a possibility of one more increase in deposit rates as key policy rates may go up even further.

Earlier this month, IDBI Bank and Lakshmi Vilas Bank raised their FD rates.

Suresh Sadagopan, who runs Ladder 7 Financial Advisory Services, said that the policy rates may go up again in the next three to six months. “Due to this, bank FD rates will also go up.”

State-run IDBI Bank raised FD rates by 25 to 50 basis points earlier this month. RK Bansal, executive director- retail banking, IDBI Bank told DNA, “If policy rates move up, deposit rates will also move up. Banks will be forced at that point of time to increase deposit rates.”

Currently, a one-year and one-day deposit in IDBI Bank fetches 9%. Till May 4, it used to fetch 8.75%. Similarly, the rate for a 270 days to one year deposit was increased by 50 basis points to 8.50%. Lakshmi Vilas Bank raised the rates more aggressively across select maturity buckets by 175 to 200 basis points.

Bank FDs will be a good investment option in times of high inflation. This is particularly true for risk-averse investors and those in the lower tax bracket. “FDs will continue to give good returns due to the high inflation. Government will make sure that people make some money to cover the inflation,” said Bienu Vaghela of Apnapaisa.com.

The Wholesale Price Index (WPI) inflation for the month of March stood at 8.98%, above the Reserve Bank of India’s target of 8%.

According to economists, WPI is expected to remain close to 9% till October, due to which more rate hikes will be needed.

“Inflation is expected to remain close to 9% and hence key policy rates are going to go up by another 25 to 50 basis points in the next three to four months,” said Sachchidanand Shukla, chief economist at Enam Securities.