Around 20 banks and financial institutions have hiked their deposit rates barely a month before the credit policy which is due on April 17. The hike is between 0.25 and 2.25 per cent and is for select maturities. Mostly, it is the public sector banks which have done so.

Lock into long-term deposits

With rates close to their peak, we recommend investors to lock-in at long-term deposits.

The possibility of a policy rate cut by the RBI and the recent moderation in short-term rates in the wholesale market indicate that high deposit rates may not hold up beyond a quarter or two.

As the interest rates may decline in coming quarters, one can earn higher interest by locking into deposits of 3-5 years.

For deposits of more than three years, there are a few options which offer decent rates of interest. Smaller private banks such as Dhanlaxmi Bank, Tamil Nad Merchantile Bank and South Indian Bank offer 10.1 per cent, 9.75 per cent and 9.6 per cent respectively.

A 10.1 per cent deposit will offer post-tax yield of 9.05 per cent, 8.01 per cent and 6.97 per cent respectively for depositors in the 10 per cent, 20 per cent and 30 per cent tax brackets.

Deposits of less than Rs 1 lakh offer safety thanks to deposit insurance. Depositors with higher risk appetite can also consider Shriram Transport Finance's three year 10.75 per cent deposit.

Infra bonds

For tenors of more than 10 years, around Rs 60,000 crore of tax-free bonds, which are to be raised this year, can be attractive. These bonds would take care of the investment appetite for depositors in higher tax bracket. These tax-free bonds are linked to Government bond yields and given that bond yields have risen recently, the rates of these issues can be attractive.

short-term options

Depositors with shorter investment horizon can consider Corporation Bank's term deposits. This deposit offers an annualised 9.75 per cent rate of interest for maturity of anywhere between 75 to 365 days. This is the best rate offered by any bank for the given time period. For depositors in a higher tax-bracket, a 7 per cent savings bank deposit of Yes Bank is also an option as the interest of up to Rs 10,000 is tax-free.

For investments in deposits of 1-2 year maturity, the Lakshmi Vilas Bank's 10.5 per cent deposit is among the best.

company/NBFC deposits

Bank deposits offer lower returns for lower risk, compared with options such as company deposits and deposits in non-banking finance companies. For instance, 365-day special deposit of Dewan Housing Finance is offering 11 per cent rate of interest while Shriram Transport offers a rate of 10.75 per cent for depositors. Apart from these deposits, non-banking finance companies from time to time have been tapping the bond route for retail funds. These rates are very attractive for fixed-income investors with high risk appetite. For instance, the recently concluded Muthoot Finance's non-convertible debenture issue gave an attractive rate in excess of 12 per cent.

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