Fixed Deposit strategy: How to make the most of FD now?

The Reserve Bank of India on Thursday kept the repo rate unchanged, indicating that the rate hike cycle may be over soon. When the repo rates were hiked since last year, the interest rates for bank fixed deposits also went up significantly. Several small finance banks are now offering over 9% FD interest rates to their customers, including senior citizens.

However, the end of the repo rate hike cycle means there may not be further hikes in FD interest rates, according to experts. So for investors, who want to make the most of fixed deposits, this is a good time to book their FDs at higher interest rates. It needs to be noted that when you book an FD at a certain rate, it remains unchanged throughout the tenure of the deposit.

“In line with the broad expectations, the RBI has kept the repo and reverse repo rates unchanged. The outcome further validates the belief that we are closer to the end of the rate hike cycle. From retail investors’ standpoint, this is an excellent time to lock in fixed deposits because interest rates may be close to their peak,” says Anshul Gupta, Co-founder and Chief Investment Officer of Wint Wealth.

Also Read: RBI keeps repo rate unchanged: How this will impact homebuyers

According to Abhishek Banerjee, Founder and CEO of Lotusdew Wealth and Investment Advisors, it made sense sometimes back to keep FDs in auto-renew for 30-day tenure to take advantage of the rising rates. However, in view of RBI pausing the repo rate, it may now make more sense to book long-term FDs at currently available higher interest rates.

“RBI lowered inflation target by 0.1% – and for now has anchored the repo rate at 6.5%. This means FD and small savings schemes might not see further upside in rotating shorter maturities. Some time ago it made sense to keep FDs in auto-renew for 30-day tenure to take advantage of rising rates, but now we might look at locking in these rates for a longer maturity,” says Banerjee.

Also Read: RBI Repo Rate: Smart way to close your home loan fast

“That said, we have a general election and elections are usually inflationary in nature. Hence, next 12 months when this plays out – we could see some upward revision if inflation surprises us on the upside. The next state elections are around January 2024 – so till then it makes sense to lock FD rates,” he adds.