Couple of non-bank lenders have taken cues from global and local inflationary trends and hiked the interest rates on their fixed deposits (FDs). These interest rate increases are effective from today – December 1, 2021. Are the FDs attractive now?
What has changed?
The FDs of HDFC will offer up to 10 basis points more across tenures. For 36 months, HDFC now offers 6.1 percent and for 60 months it offers 6.5 percent. Senior Citizens continue to earn 25 basis points more than the card rates and investors making their fixed deposits online pocket 10 basis points extra. Earlier, HDFC was offering 6.05 percent and 6.4 percent on those fixed deposits, respectively.
Bajaj Finance (BFL) has also increased the rate of interest by up to 30 basis points. It will pay 6.4 percent interest on its 24 months FD compared to 6.1 percent earlier and 6.8 percent on 36 months deposit compared to 6.5 percent earlier.
Are they attractive?
These rate hikes are announced ahead of the Reserve Bank of India’s monetary policy review due on December 8, 2021. At a time when the world is preparing for possible hikes, investors should not ignore interest rate movements. “Interest rates in the economy may go up gradually and investors should not hesitate to park money in good-quality fixed deposits with a medium term view,” says Anup Bhaiya, Managing Director, Money Honey Financial Services.
Companies keep changing interest rates on their fixed deposits to remain competitive in the financial markets. They tend to offer better rates for the duration basket where they need funds. A point to note is that HDFC has marginally reduced the rates on its 15 months deposit. Investors are better off ascertaining the attractiveness of a fixed deposit in the context the rates offered by other investments with similar risk profile.
“These are AAA rated good-quality issuers. Investors should also compare the rates on offer with those on small saving schemes before investing,” says Joydeep Sen, Corporate Trainer-Debt. The rates on offer are bit better or in line with rates on small saving schemes. National Saving Certificate offers 6.8 percent with a lock-in of five years and tax benefit under section 80C of the Income Tax Act.
“Investors should ideally not keep their emergency funds in company deposits, as they come with conditions and high penalties attached to premature withdrawals,” says Parul Maheshwari, a Mumbai-based Certified Financial Planner.
Should you invest?
Bhaiya advises laddering – investing in fixed deposits across maturities to protect yourself from risks associated with changes in interest rates. “These fixed deposits are AAA rated. Investors can allocate some money to these corporate fixed deposits as they offer better yields than bank fixed deposits,” says Maheshwari.
The interest paid is taxable in the hands of the investors as per their slab rates. Investing for too long duration FD – typically beyond 60 months make little sense if the interest rates move up. While investing in the corporate fixed deposits assess your cashflow needs. Ideally invest in these if you can hold on to them till maturity.