The Reserve Bank of India (RBI) raised the key lending rate – the repo rate – by 50 basis points (bps) to 5.40 percent on Friday. While the move will hurt loan borrowers as they have to pay more in the form of EMI (equal monthly installments), there is also a kind of respite for those who want to invest their money in fixed deposits (FDs) and others. small savings plans
In this case, FDs and other small schemes can now reap better returns as they have remained at lower levels for many years due to the pandemic.
It raised the repo rate by 140 basis points in three consecutive rate hikes — 40 basis points in May; 50 basis points in June and August, respectively.
Banks usually increase the deposit rate after the central bank increases the repo rate.
“The latest move has made borrowing expensive, resulting in an increase in loan term and EMIs. However, deposit interest rates, which have been down for several years, will rise. So as a client, Adhil Shetty, CEO of Bankbazaar.com, expects higher interest rates on your fixed deposits. do,” he said.
Also, other small savings interest rates have a “chance” to rise.
“Possibly small savings interest rates may also rise. Elderly and very senior citizens will receive an additional 25 basis points per year from general citizens at 50 basis points. But you may not see the increase immediately. Banks are expected to collect deposits. Bankbazaar CEO is calling interest rates to ensure funding costs do not increase significantly. gradually increased their rates,” he said.
For better returns, “ladder” investments should be made and shorter tenures should be preferred.
“Since interest rates are on an uptrend, it’s best to step up investments and invest for shorter periods so you can reinvest them at maturity for higher returns,” said Pankaj Bansal, Bankbazaar.com’s Chief Operating Officer.
Laddering will also take care of liquidity issues and will periodically provide you with regular returns, he added.