You can get higher returns on floater rate FDs (indicative picture)
The Reserve Bank of India (RBI) on Friday did not change the key policy rate repo as expected and kept it at a record low. This is the eighth time in a row that the central bank has kept the repo rate unchanged. The Monetary Policy Committee (MPC) headed by Reserve Bank Governor Shaktikanta Das last changed the repo rate on May 22, 2020. Repo rate is the rate at which commercial banks take loans from the central bank for a short period of time to meet their immediate needs.
Announcing the bi-monthly monetary review, the Reserve Bank said, ‘MPC has decided to keep the repo rate at 4 percent.’ Accordingly, the reverse repo rate has also been kept at 3.35 percent. The Reserve Bank has also retained the GDP growth forecast of 9.5 per cent for the current financial year 2021-22. With no change in the repo rate, the interest rate on fixed deposits (FDs) is less than several years. Banks and non-banking financial institutions have been reducing interest rates on FDs for the last two years. Despite these adverse conditions, investors can increase the returns on their FDs.
1-Maintain short term FD
Right now, the interest on FD is not increasing, but as soon as the government increases it, then it will be the turn of short term FD to take advantage first. The rate which is at present is at the lowest level and nothing can happen below it. Now interest rates will increase, not decrease. In such a situation, first of all, short term and medium term FD will get a chance. Later on long term FD interest may increase.
2- Renew FD in short term
If an FD has matured and you want to renew it, then do it in the short term. If you want to open a new FD or renew the old one, then do it within a period of 1 year or less. The advantage of this is that your deposit will not be locked for long days. If the interest rate increases, then the benefit, otherwise the money will not be stuck for long. If there is a FD of short or medium term, then it is easy to increase it in the long term, which can be done in view of the increasing interest rate, but if the FD is stuck in the long term, then it cannot be taken in the short term.
3-Take multiple FDs of less money
It is better to take multiple FDs than investing more money in one FD. Suppose if you want to take FD of 5 lakhs, then don’t take one scheme of it, take 5 schemes of 1-1 lakhs. Get the FD done in such a way that every year one FD matures and you get the full amount in your hands. This can reduce the burden of inflation. It is difficult to beat inflation by investing all the money in a single FD. Take 5 FDs for Rs 5 lakh and start it with tenures of 1 year, 2 years, 3 years, 4 years and 5 years. If the first FD matures in one year, then renew it for the next 5 years. As the second, third, fourth and fifth FDs also mature, keep renewing them for the next 5 years. There will be no shortage of money in this life.
4-Focus on floating rate scheme
If you are worried about low interest rate, then take a floating rate FD. The advantage of this will be that as the interest rate increases, your earning on FD will increase. Nowadays many banks and financial institutions are offering FD on floating rate. For example, Indian Overseas Bank offers floating rate FDs for 3-10 years. In this, the rate is decided according to the average of every day. If you look at the 10-year G-Sec, then till September 24, 2021, this FD has given an average return of 6.21 percent. This rate is higher than the FDs of most big banks.
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