Is Golden era for Bank Fixed Deposits gone forever?
Published On: Friday, August 28, 2020 | By: Team KnowMyStock
As the interest rate on bank deposit continues to be subdued and real returns turn negative in the wake of rising inflation, the common Indian bank depositor has been left rueing a bitter harvest. At stake is the future of a time-tested investment instrument that generation after generation of Indians used to keep their money in and generate fairly decent returns over time. Bank fixed deposit (FD) rates have fallen from 8-10 percent per annum a few years ago to 5-7 percent per annum currently, says Jimmy Patel, MD & CEO, Quantum Mutual Fund. For most of India's senior citizens, FDs are the primary investment, and current rates are not viable because of paltry real returns, he adds.
Inflation levels have remained above the 6 per cent mark in recent months amid supply-side shocks — consumer inflation in July was around 7 per cent, with food inflation coming in slightly higher at 9.6 per cent. With interest on most deposits currently below 6 per cent, investors are getting negative returns on their savings.
A major share of the blame can be apportioned to the RBI’s largely accommodative monetary policy over the past year. The central bank has cut rates by 250 bps since February 2019 with the most aggressive reductions coming during the Covid-19 lockdown.
Additionally, there has also been massive liquidity injections into banks. This has resulted in the fixed deposit rates for even leading Indian banks to drop down to the rate on savings accounts.
It will be too much to think that FDs will ever return to their former glory, and it may be time for investors to look elsewhere to park their savings, says experts.
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