Earnings from savings: Interest rates are expected to rise further

Good news awaits bank depositors. Interest rates on fixed deposits (FDs) are expected to rise further, helping depositors to earn more from their savings. Most of the retail term deposits are concentrated in the one year scheme banks also offer higher rates for 3 to 5 year deposits.

IDFC offers up to 8.75 per cent in the 3 to 5 year category for senior citizens. The bank offers 8.25 per cent for general customers.

With the equity markets currently under a spell of turbulence, banks hope that investors would migrate their investments to bank deposits. The one-year deposit rates are the highest from HDFC Bank, which is offering 7.30 per cent to its general customers and 7.80 per cent to senior citizens. Bandhan Bank, however, gives the highest returns to senior citizens at 8 per cent in the one year category. In certain buckets, the current peak rate for YES Bank is at 8.25 per cent.

With elections in several states around the corner and general elections in 2019, cash will be in deficit forcing banks to build up their resources.

ICICI Bank on Wednesday announced a 0.10 per cent to 0.25 per cent rise in its deposit rates. The one-year deposit of the bank has gone to 6.90 per cent and for senior citizens at 7.40 per cent.

"With the prevailing volatility in financial market, we see renewed interest by customers to invest in fixed deposits which offer a combination of attractive interest rates, liquidity and assured returns," said Pranav Mishra, senior general manager & head – retail liabilities group, ICICI Bank. In the 2 to 3 year tenure the senior citizens can earn up to 8 per cent, highest rate offered by the bank on its FDs.

Adding to the depositors cheer is that Consumer Price Index (CPI) Inflation stood at a 13-month low of 3.31 per cent in October.

"The real returns on Fixed Deposits after factoring inflation have also improved significantly. With turbulence in the equity markets, FDs should therefore form an integral part of a customer's asset allocation as a safety net providing assured returns," Dhavan Shah, senior president & chief product officer – liabilities, YES Bank, said.

The Reserve Bank of India (RBI) increased benchmark interest rates by 0.50 per cent over the last 12 months. A number of banks have subsequently raised their Fixed Deposit rates as well, to pass on the benefit to customers. Soon after the demonetisation, banks were offering only 5 per cent to 6 per cent on the fixed deposits as there was excess liquidity with banks.

Axis Bank executive director, Rajiv Anand, said, "To support the good credit growth, we need funds. As the demand for funds rises, the interest rates on deposits are bound to rise."