Risk-averse and looking to invest in a bank fixed deposit?

With banks seemingly revising downwards the interest they pay on term deposits, it’s hard to work out which one is offering the best rates.

Well, to help you decide, we outline what bank interest rates are, across tenures.

Action so far Banks first began trimming their interest rates on fixed deposits towards the end of 2014. The Reserve Bank of India cutting rates by 75 basis points since the start of this year sparked further reduction in banks’ FD rates.

Across timeframes between one and five years, most banks lowered interest rates by 50 to 75 basis points. A few made deeper cuts; Canara Bank, for example, reduced interest rate on deposits of one- to five- years from 9 per cent to 8 per cent over the past four months. Punjab National Bank, Indian Overseas Bank, United Bank of India, Vijaya Bank and Oriental Bank of Commerce have also cut their interest rates to a similar extent.

Given that interest rates are in a downward cycle, further rate cuts are quite likely.

Longer term options At this point, investing in longer-term deposits makes good sense. Short-term deposits will open up the risk of you having to reinvest your money at lower interest rates. So, if you have no immediate need, consider deposits with a period of three to less than five years.

For this tenure, Lakshmi Vilas Bank, and DCB Bank currently offer the highest rates at 8.6 per cent. LVB has a minimum opening amount of ₹100. Interest will be compounded on a quarterly basis for cumulative deposits, though interest payout option is also available. For DCB, the minimum deposit amount is ₹10,000 and if you choose the cumulative option, interest will be compounded quarterly.

If you opt for interest pay out instead, it can be monthly or quarterly. You can also open a DCB deposit online, though there are KYC formalities that need to be complied with. A few banks offer slightly lower rates of 8.5 per cent for the three-year timeframe too. These include Karur Vysya Bank and Andhra Bank, and TMB.

Going for deposits with tenures of five years and over is not the best idea since it is hard to predict how the interest rate cycle will unfold over such a long timeframe. Going for the cumulative option is advisable, if you aren’t in need of regular monthly cashflows.

Shorter horizon Investing for at least three years is ideal. But you may want to park your funds in a fixed deposit just for the time being.

Lakshmi Vilas Bank, for one, will pay 8.6 per cent for deposits of one year and above. Then there is DCB, with an interest rate of 8.55 per cent for deposits between 13 and 24 months. One- to two-year deposits from Andhra Bank, Karur Vysya Bank, and TMB will fetch you 8.5 per cent.

Then there are special deposit schemes which offer higher rates. For example, TMB’s has a 555-day deposit that carries a rate of 8.6 per cent. Similarly, for deposits between one year and 555 days, State Bank of Patiala pays 8.52 per cent.

Note that these rates are as of August 1 and may change depending on bank action.

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