Following closely on the heels of a deposit rate hike, last month in February, the State Bank of India has increased rates for deposits of maturities of two years or more. The move follows a trend of rising rates in the Indian economy overall. The revision in term deposit rates (below Rs 1 crore) is as follows:
|Term||Old Rate||New Rate|
|2 – 3 years||6.5%||6.6%|
|3 – 5 years||6.5%||6.7%|
|5 – 10 years||6.5%||6.75%|
The rates for shorter term deposits have been held constant. They are:
|General Public||Rate (From 28th February 2018)|
|211 days to less than 1 year||6.4%|
|Above 1 year to 455 days||6.4%|
|456 days to less than 2 years||6.4%|
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.
However, a recent announcement by the Government on lower borrowing caused rates in the debt market to fall. If fiscal discipline is maintained, additional rate hikes by SBI and other banks may not follow.
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 mutual funds. These funds also do not have TDS deducted from gains in them. You can read more about mutual funds here.