After two rate hikes in February and March 2018, SBI has raised rates once again on select tenures (1-2 years and 2-3 years) on early this week. The move follows a trend of rising rates in the Indian economy overall. It also follows an HDFC Bank rate hike in April, about which we have written here. The revision in term deposit rates (below Rs 1 crore) is as follows:
|Term||Old Rate||New Rate|
|1 – 2 years||6.40%||6.65%|
|2 – 3 years||6.60%||6.65%|
The rates for deposits for other terms have been held constant. They are:
|General Public||Rate (From 28th May 2018)|
|211 days to less than 1 year||6.40%|
|3 – 5 years||6.70%|
|5 – 10 years||6.75%|
Additional points to note:
- Senior Citizens (those above 60 years) get a 0.5% higher rate on a deposit of any tenure.
- SBI staff and pensioners get a 1% higher rate on a deposit of any tenure. Hence senior citizens who are also SBI staff or pensioners get a 1.5% higher rate.
Why this is happening
The rate hikes by the US Fed and higher government borrowing in India are pushing overall interest rates higher. This pushes banks such as SBI to raise their own rates to attract deposits.
What should you do
Bank fixed deposits are suitable for investors who want to take a very little risk with their money. In return, investors pay tax on them as per their slab rate and have TDS deducted. Bank deposits often have their value eroded over time.
If you can take some risk, you can get a slightly better post-tax return in liquid or ultra-short term mutual funds. These funds also do not have TDS deducted on gains in them. You can read more about mutual funds here.
Alternatively, you can invest in NCDs of reputed issuers which are rated highly by rating agencies. DHFL recently came out with an NCD issue offering interest rates up to 9.1% and JM Financial Credit Solutions came out with an NCD issue offering rates up to 9.75%. The former is open for subscription till 4th June and the latter is open for subscription till 20th June 2018.