Since May of last year, interest rates on fixed deposits (FDs) have increased due to the RBI’s 250 basis point increase in the benchmark repo rate, which prompted banks to do the same. As a consequence, bank FDs have begun to exceed inflation rates in attractiveness. The government also increased interest rates on Friday for little-used savings programs including PPF, NSC, SSY, and post office accounts. Do FDs give higher returns than microsavings programs? Here is how they compare:
FDs from banks
Time deposits made at a bank are known as fixed deposits; for example, depositors may put their money in a fixed deposit for six months, a year, three years, or five years. This fixed deposit is eligible for set yearly interest rates from the bank, with different rates depending on the depositor’s age and the length of the FD.
At the moment, HDFC Bank provides general customers interest rates of up to 7.1% and senior customers interest rates of up to 7.6%. (above 60 years of age). For both the general public and elderly people, PNB provides up to 7.25 percent and 7.75 percent, respectively. The general public may get up to 7.1 percent from ICICI Bank, while seniors can get up to 7.6 percent.
Small-Savings Programs
These are government-managed savings vehicles designed to promote regular saving among the populace. Three types of minor savings plans are available: monthly income plans, social security plans, and savings deposits.
1-3 year time deposits and 5-year recurring deposits are examples of savings deposits. Savings instruments like as National Savings Certificates (NSC) and Kisan Vikas Patra are also included (KVP). Public Provident Fund (PPF), Sukanya Samriddhi Account, and Senior Citizens Savings Plan are examples of social security programs. The Monthly Income Account is a part of the monthly income plan.
newest interest rates for several small savings plans for the quarter ending in June 2023:
4% for savings deposits
Time Deposits at the Post Office for One Year: 6.8%
Time Deposits at the Post Office for Two Years: 6.9%
Time Deposits at the Post Office for Three Years: 7%
Time Deposits at the Post Office for Five Years: 7.5%
NSCs (National Savings Certificates): 7.7%
7.5% for Kisan Vikas Patra (will mature in 115 months)
7.1% for Public Provident Fund
8.0% in the Sukanya Samriddhi Account.
“As predicted, modest savings interest rates have increased by 10-70 bps across multiple instruments,” said Aditi Nayar, chief economist and director of research and outreach at ICRA. In view of the anticipated rate rise by the MPC in April 2023, which would subsequently be relayed to bank deposit rates, this could aid to collect consistent deposits in the next quarter.
Since May, the Reserve Bank has increased the benchmark lending rate by 2.5% to 6.5%, which has prompted banks to increase interest rates on deposits as well.
The RBI increased the repo rate, also known as the short-term lending rate, by 25 basis points last month. This was the sixth consecutive rate increase, following increases of 40 basis points in May and 50 basis points in each of the months of June, August, and September. Since May of last year, the RBI has increased the benchmark rate by a total of 2.5%.