What to do with fixed deposits (FDs) while interest rate is falling?

Is it a right time to book FDs and what are your current alternatives?

There has been a continuous decline in interest rate of fixed deposit as banks have been reducing their fixed deposit rate especially after the latest beginning of repo rate reduction spree by RBI in January 2015. As a result fixed deposit interest rate which was hovering around 9.5% around till 2014 end has now already come down to around 7.5%. 

With adequate deposits banks will reduce rate in future also: However after the current surge of deposits in the banking system through the government's demonetization drive, banks are now flooded with low cost deposits. As they have enough deposits with them therefore to discourage depositors from making further deposits banks are bound to reduce their deposit rate significantly. If you have your FDs locked in a good interest rate it makes sense for you to continue with them. However if you have surplus funds to park or FDs which are maturing in near future then you would need to hurry and park your deposits at current interest rate because the interest rate is bound to go lower from the prevailing levels.

Advantage for senior citizens: Though, for senior citizen the government has announced a saving scheme which offers an annual interest rate for 8% for next 10 years. This scheme is available for deposits maxim up to Rs 7.5 lakh after which depositors can receive monthly interest in their account. However others will have to evaluate their options quickly as there are some small savings which are still offering higher rate but it would not be for too long as government is bound to reduce that rate sooner or later. 

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Government small saving schemes offering good interest rates: For the senior citizen the existing senior citizen savings scheme looks a better option to park their money if they do not mind locking their funds for 5 years as it would give them a higher interest rate of 8.5%. It also gives them income tax saving benefit under section 80 C. For others who are looking only for government backed fixed deposit option they can go for 5 year term deposit option from Post Office which is offering an interest rate of 7.8% p.a. which can be considered a quite high interest rate in the given circumstances. If you are ready to lock in your fund for next 5 years and get section 80C deduction benefit you can go for NSC (National Saving Certificate) which is offering an annualized interest rate of 8%. These all are small savings schemes of the government which frequently revises the interest rate. However the government has not gone for any reduction in current quarter which means that these rate would be available till March 2017.

Other bank FD options: However if you are looking for bank fixed deposits only then you can go with new banks like IDFC Bank and Bandhan Bank which are still offering an annual interest rate of 7.5% and 8% respectively on their fixed deposits of around one year term. However you will need to take a call soon because these rates will also fall sooner than later.

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