Priyanka Tiwari
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Suspense crime, Digital Desk : Savers and investors relying on the steady returns of Fixed Deposits (FDs) are keenly watching the Reserve Bank of India's (RBI) upcoming Monetary Policy Committee (MPC) meeting. Strong anticipation is building that the central bank might finally pivot towards an interest rate cut, a move that could significantly impact the rates commercial banks offer on their FD schemes.
The primary driver for a potential repo rate reduction is the evolving inflation scenario. If the MPC perceives that inflation is sustainably moderating and heading towards its target, it may opt to ease borrowing costs to provide a fillip to economic growth. Historically, when the RBI cuts its repo rate (the rate at which it lends to commercial banks), banks often follow suit by lowering their lending rates and, consequently, the interest rates they offer on deposits, including FDs.
For FD investors, this creates a crucial decision point. If a rate cut materializes, the attractive higher interest rates currently available on some FDs might soon become a thing of the past. So, what should an FD investor do in this environment?
Financial experts generally advise a proactive approach. If you have surplus funds earmarked for an FD and are comfortable with the current rates, now could be the opportune moment to lock them in, especially for longer tenures. By doing so, you secure the prevailing interest rate for the duration of the deposit, shielding your returns from potential future declines.
When choosing, consider not just the interest rate but also the tenure that aligns with your financial goals. Longer-term FDs often offer slightly better rates, and locking in now means enjoying that rate for a more extended period. However, also assess your liquidity needs before committing to a very long lock-in period.
Furthermore, while chasing the highest rate is tempting, don't overlook the safety and credibility of the financial institution. Opt for well-regulated banks covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures deposits up to ₹5 lakh.
While the exact decision of the MPC remains to be seen, being prepared for a potential shift in the interest rate cycle is key. For those looking to maximize returns on their fixed-income investments, the current window before the RBI's policy announcement might be critical for making strategic decisions about their FDs.
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