“After the rise in rates, fixed deposits are good options now as they beat inflation,” said Jitendra Solanki, a Sebi-registered adviser.
PSU banks have taken the lead in raising deposit rates, offering as high as 8.5% to senior citizens for specific tenures. State Bank of India now offers 7.1% for a 400-day deposit, with senior citizens earning 7.6%. Among other nationalised banks offering attractive rates are Union Bank of India -7.3% for an 800-day deposit, and Central Bank 7.25% – for a 444-day deposit. Punjab and Sind Bank offers 8% for a 221-day deposit if done online, with senior citizens earning 8.5%.
“Fixed deposits score on simplicity. Investors know the interest that you will get and are sure of when they will get their money back. This is useful to plan for near-term goals,” said Anup Bhaiya, MD at Money Honey Financial Services. Investors are comfortable placing large chunks of deposits with nationalised banks as they are backed by the Government of India. Though there are prepayment penalties if investors require money midway through the tenure, there is liquidity and ease as investors can walk into their bank branch to get money back.
Competing products like post office time deposits pay 6.6% for a one-year deposit and 6.8% for a two-year deposit, while the 10-year government benchmark bond yields 7.35%, while target maturity funds could yield 7-7.25%.
Mutual funds do not offer guaranteed returns and there could be volatility, especially in long-tenure debt schemes, which result in an intermittent mark to market loss. However, for rich investors, debt mutual fund schemes are more tax efficient as they get the benefit of indexation if they hold for more than three years which significantly reduces tax liability. In the case of fixed deposits, interest earned is taxable in line with your tax slab.
