SBI raises deposit rates by 0.5%, what it means for youState Bank of India (SBI) has increased its deposit rates by 0.5% following hardening yields on government bonds and an RBI pause on further rate cuts. If you have already locked-in your deposit at the previous rate, you have lost out. The trend of higher rates may continue, so do not rush to lock-in a rate simply because of this hike. Breaking your existing lower-rate FD will also carry a premature termination penalty.

Highest Rate for any time period: 6.5 % (2 years to 10 years)

General Public Previous Rate (From 1st November 2018) New Rate (From 28th February 2018)
7-45 days 5.25 5.75
46-179 days 6.25 6.25
180-210 days 6.25 6.35
211 days to less than 1 year 6.25 6.4
1 year 6.25 6.4
Above 1 year to 455 days 6.25 6.4
456 days to less than 2 years 6.25 6.4
2 years to less than 3 years 6 6.5
3 years to less than 5 years 6 6.5
5 years and up to 10 years 6 6.5

(All rates for SBI)

Looking for alternatives?

There are alternatives available but you must, in return, take some risk or give up on some liquidity or both. Here they are:

  • Deposits with other banks

Some private or new banks will offer higher rates. RBL Bank offers an interest rate of 7.1% on deposits from 12 months to 24 months and 7.2% on deposits from 24 months to 36 months. Yes Bank offers 7.19% on deposits from 1 year to 10 years.

  1. Government of India 7.75% Bonds (RBI 7.75% bonds)

As the name suggests, you will get 7.75% interest on these bonds. They also have a lock-in for seven years. However, they are guaranteed by the government making them virtually risk-free. You can read more about them here.

  1. Debt Mutual Funds

If you are willing to take some risk, debt mutual funds can offer a slightly higher return. They also offer better liquidity and a somewhat better tax treatment. Their tax advantage stems from the fact that each withdrawal from them can be treated as part capital and part income allowing you to pay tax on just the income component. They also do not have TDS deducted from them.

Credit Opportunities Funds have yielded 7.06% over the past one year and 8.86% over the past three years. Short-term debt funds have yielded 5.99% over the past one year and 7.7% over the past three years. Liquid Funds have yielded 6.61% over the past one year and 7.28% over the past three years.

For Senior Citizens

SBI and other banks typically offer higher rates for senior citizens. Here are the rates for senior citizens:

Highest Rate for any time period: 7% (2 years to 10 years)

General Public Previous Rate (From 1st November 2018) New Rate (From 28th February 2018)
7-45 days 5.75% 6.25%
46-179 days 6.75% 6.75%
180-210 days 6.75% 6.85%
211 days to less than 1 year 6.75% 6.90%
1 year 6.75% 6.90%
Above 1 year to 455 days 6.75% 6.90%
456 days to less than 2 years 6.75% 6.90%
2 years to less than 3 years 6.50% 7.00%
3 years to less than 5 years 6.50% 7.00%
5 years and up to 10 years 6.50% 7.00%

Looking for alternatives?

Senior Citizens have a host of alternatives, in addition to the options for the general public mentioned above. These include the Government-backed Senior Citizens’ Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY). These have interest rates of 8.5% and 8% respectively (with different lock-in periods). You can read more about them here.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.