A couple of weeks ago, Central Bank of India and Oriental Bank of Commerce (OBC) reduced the interest rates on their term deposits.
Central Bank revised its peak deposit rate to 9.25 per cent for 555 days, as against the earlier 9.60 per cent.
It also slashed the rate on deposits of Rs 1 crore and above by up to 455 basis points. OBC also lowered it by up to 100 basis points.
This is for the first time in six months that banks have cut deposit rates. This comes despite the RBI increasing key rates by 25 basis points. Since March 2010, the RBI has raised rates seven times.
At present, the rates on term deposits are as high as 10 per cent for some maturities. For instance, Karur Vyasa Bank and Federal Bank are offering 10 and 9.6 per cent for one-year term deposits.
The figures are quite lucrative, given the stock markets have been highly volatile. Besides being a safe investment option for the risk-averse, bank fixed deposits also provide an additional 0.5 per cent to senior citizens.
So, if you have not put money in term deposits thinking the rates will go up further and you may get even better returns, you should not think twice now.
For the risk-averse and senior citizens, this may be the last opportunity to get their money locked in high interest yielding term deposits.
From the tax saving perspective, fixed deposits are helpful only if you lock the money for five years. But, the interest rates may change in five years.
So, financial planners do not advise fixed deposits for the long term and for those in the highest tax bracket as the returns get eroded.
Therefore, you can either park surplus cash or lock-in money you may need a year or so later.
