Is it An Excellent Time to Invest in FDs as Interest Rates may be Close to Peak because of RBI Repo Rate Pause | RRD’s Opinion

Reserve Bank of India (RBI) kept the repo and reverse repo rates unchange and concluding the three-day Monetary Policy Committee (MPC). Since May 2022 the central bank has increase the repo rate six times and by a cumulative 250 bps to 6.50%. 

Following the rise in repo rate, most banks have revise interest rates on fixed deposits (FDs), too.

But now, as the interest rates are expect to cool, the question arises if it is a good time to lock your money in an FD to cash in on the higher interest rates? 

At present, for a tenure of 1-2 years, State Bank of India offers a 7.1% interest on FD, while for a term of 5 years Suryoday Small Finance is offering 9.10%.

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Bond markets have already discount rate cuts and 10-year government security (G-Sec) yields have already fallen by more than 50 bps since September. 

On 7th November 2023, Nithin Kamath, founder of Zerodha, tweeted that individuals can consider investing in G-Secs and treasury bills (T-bills) due to the significantly higher interest rates they offer.

According to the data provide by Nithin Kamath, T-bills offer higher interest rates on bank FDs.

The interest rates on T-bills are 6.47% for a tenure of 91 days, 6.8% for 182 days, and 6.95% for 364 days.

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In contrast, banks’ FD rates do not exceed 6%.

Similarly, corporate bonds are currently providing significantly higher rates compare to FDs.

For instance, corporate bonds are offering a rate of 9%-11%, FDs are offering an average interest rate of 6%-9% for a tenure of one to three years.

And the higher returns are appealing, it’s crucial to recognise that corporate bonds carry more risk than FDs.

These bonds entail both credit and interest risk.

So, it is important to carefully assess the credit quality of the issuer before investing or consider investing in them.

Rahul Ram Dwivedi (RRD) is a senior journalist in 2YoDoINDIA.

NOTE : Views expressed are personal.