What To Do When FD Interest Rates Are Falling?

As an informed investor, you must be aware of the present economic situation and measures the central bank takes to support economic growth, such as key policy rate cuts or boosts. The policy rate is an important indicator of the economic state. The Reserve Bank of India (RBI) cuts the rates to cope with a fragile economic situation and raises them when the economy recovers. 

The Current Interest Rates for Fixed Deposit Scenario

Talking about the fixed deposit interest rate today, it can go as high as 7%, with banks offering FDs for the tenor of 7 days to 20 years.

After a few years of dealing with low-interest rates, the central bank has kicked-started to raise the Repo Rate in 2022. RBI hiked the repo rate by 0.5% to 5.40%, which supports FD investors. It is the third straight hike this year. The RBI started a repo rate hike this year in May (0.40%), followed by a hike in June (0.50%). The next meeting of the Monetary Policy Committee (MPC) is scheduled for the last week of September 2022. With the likelihood of another hike, banks have started to offer higher interest rates for fixed deposits. 

Can you Ignore Fixed Deposits Even if Interest Rates Fall?

It is a fact that the rate of interest is one of the biggest factors in investing decisions. Even if the FD interest rates do not stand so high, still, individuals find FDs efficient with guaranteed returns to include in their investment portfolios.

  • Depositors can earn assured returns with the highest safety of the principal amount. Risk-averse investors like newbies, senior citizens and retirees can not afford to ignore FDs. However, they can consider diversifying their investment portfolios by including other investments besides FDs, like mutual funds, debt funds, etc. 
  • Unlike any other investment, you can calculate your FD returns using a fixed deposits calculator even before opening an FD account.

What to do when FD Interest Rates are falling?

  • You can stick to short-term FD tenures when the interest rates are falling. After completing this short-term tenure, you can renew your fixed deposit. It will help to benefit from rising interest rates with the growth of the economy and earn more at higher interest rates for fixed deposits. Bank FDs are flexible in terms of tenure, with a lock-in period between 7 days – 20 years. 
  • Also, investors can manage reinvestment risk by spreading investment across several FDs for a certain period. You can open multiple FDs with different maturity periods, called the laddering strategy. Simply because as one FD matures, you can reinvest the funds in the nearest FD on the ladder. This strategy helps reduce the risk of interest rates. 

You can decide on the amount of deposits and the right tenure using an online fixed deposits calculator easily, available for free at the official website of several banks. You can adjust the amount and tenures as many times as you want to. A fixed deposits calculator will help you to estimate returns and the total amount to be received at the FD maturity.

Thus, you can strategise your FDs to get assured returns, even when the interest rates are falling. 

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