Worried about falling FD interest rates? Do this to protect your deposits

Post Reserve Bank of India's repo rate cut, State Bank of India (SBI) announced a reduction in fixed deposit (FD) rates. With others also expected to follow suit, the falling interest rates have become a point of worry for investors.

The impact of the reduced rates are, however, not on all depositors. Existing FD depositors continue to earn at the booked interest rate till its renewal or maturity. But those wishing to open new FDs are majorly impacted.

Those looking for FDs with higher rates can opt for smaller private sector banks and small finance banks, suggests banking experts.

“The highest FD card rate offered by some small finance banks are around 200-300 bps more than the highest FD card rates offered by most PSUs and large private sector banks,” says Naveen Kukreja, chief executive officer and co-founder, Paisabazaar.

“Those having investible surpluses should consider booking fixed deposits at the earliest as some of the small finance banks may also consider tweaking their FD card rates in response to the latest repo rate cut by the RBI,” he added.

The deposit insurance program insures bank deposits including savings, recurring, current and fixed deposits of up to Rs 5 lakh of each depositor with each scheduled bank in case of bank failures.

Hence, those wishing to earn higher interest from fresh fixed deposits rates with maximum capital protection can spread their bank deposits of up to Rs 5 lakh across multiple banks offering higher fixed and savings interest rates, suggests Kukreja.

Adhil Shetty, chief executive officer, BankBazaar added that investors can split the money into multiple deposits of varying tenures in a manner that they have one deposit maturing once every six months or once every year.

"This way, whenever a deposit matures, it will be available  to exploit the prevalent interest rates at that time. So this way, investors will have multiple deposits of different tenures and interest rates, which will allow them to earn a higher rate of return over time," he adds.

FDs are best for liquidity management and not for long-term investing. Therefore, experts suggest to keep only the money required in the near-term in FDs.

"Say, one can keep FDs of 2-3 years. With that, investors will have a high degree of capital safety, moderate and assured returns," suggested Shetty.

"Rest money can be put in long-term investment schemes," he added.