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Where to Invest After Banks Cut FD rates?

IndianMoney.com Research Team | Posted On Friday, October 11,2019, 05:45 PM

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Where to Invest After Banks Cut FD rates?

 

 

RBI has cut the repo rate 5 times this year. The current repo rate is 5.15%. Many private and public sector banks have cut home loan rates. Bank of India, Oriental Bank of Commerce and Bank of Maharashtra have cut lending rates by up to 25 basis points. SBI, Central Bank of India, Axis Bank and HDFC Bank have all cut home loan rates in recent times.

What does all this mean? Well, the banks are left with no choice but to cut savings bank interest rates and FD interest rates. SBI has cut savings bank interest rates to just 3.25% from November 1st 2019. Savings bank accounts with balance up to Rs 1 Lakh earn just 3.25% a year from November 1st 2019 in comparison to 3.5% a year. Most other banks will soon cut savings bank interest rates.

SBI has also cut FD rates. You will get SBI FD interest rates of 6.4% on deposits between 1-2 years. The interest rates are 6.25% for deposits between 2-5 years. As banks cut FD rates, here comes an important question. Where to invest after banks cut FD rates?

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Where to Invest After Banks Cut FD Rates?

If you want to enjoy higher interest rates than what an FD offers, where would you invest? Let’s take a look at some popular investments which offer regular investment and yield higher returns than an FD. These investments are crucial for retired people who don’t have regular income after retirement.

Post office Monthly Income Scheme (POMIS)

The Post office Monthly Income Scheme or POMIS is a Government of India backed small saving scheme.  POMIS interest rates are 7.6% for the July to September 2019 quarter. You can invest a maximum of Rs 4.5 Lakhs in a single account and Rs 9 Lakhs in a joint account.

POMIS has a 5 year maturity period. You can open POMIS account with just Rs 1,500. What’s special about POMIS account is you get monthly interest, directly credited to your bank account. This money is handy for retired people. Do remember that interest is taxed as per your tax bracket.

See Also: What is meant by Fixed Deposit?

Senior Citizen Saving Scheme

The Senior Citizen Saving Scheme popularly called SCSS is a great investment for senior citizens (Above 60 years). You can avail Senior Citizen Saving Scheme at banks and post offices. SCSS has a 5 year maturity period.

You can invest a maximum of Rs 15 Lakhs in the Senior Citizen Saving Scheme. SCSS currently offers 8.6% interest rates. SCSS is Government backed and enjoys high security. Your investment in SCSS enjoys Section 80C tax benefit.

You get interest from SCSS payable quarterly. This is excellent regular income. The interest payouts are taxed.

RBI Savings Bonds

The RBI Savings bonds are issued by the RBI on behalf of the Government. RBI Savings bonds offer interest of 7.75% a year. RBI Savings bonds have tenure of 7 years.

You have the cumulative option and the non-cumulative option vis-a-vis interest.

Under the non-cumulative option in RBI savings bonds; interest is payable at half-yearly intervals from the issue date. This is an excellent source of regular income. Interest is added to taxable salary and taxed as per tax brackets.

See Also: Types of Fixed Deposits

These Investments Give Higher Interest Than FDs

Public Provident Fund

Public Provident Fund or PPF is a long term investment backed by the Government of India. PPF has a lock-in of 15 years. PPF offers an interest rate of 7.9% for the July-September quarter. This is much higher than FD interest rates.

PPF is tax efficient compared to FDs. While FD interest is taxed as per tax brackets, PPF enjoys the EEE benefit. Your investment enjoys Section 80C tax deduction up to Rs 1.5 Lakhs a year. The interest and amount withdrawn at maturity are tax free. You can also take a loan against PPF.

Post Office Time Deposits

Post Office Time Deposits or POTD is an alternative to bank FDs. POTD is safer than FD as interest and principal enjoy a sovereign guarantee.

POTD has four tenure options. They are 1, 2, 3 and 5-year deposits. The minimum deposit is Rs 200 and in multiples of Rs 200 thereafter. POTD with maturity of 5 years enjoys Section 80C tax benefits. Interest is calculated quarterly and payable annually. Interest is taxed just like FDs. It is added to taxable income and taxed as per income tax slabs.

Instrument

Current Interest Rates (%)

1 Year Time Deposit

6.9

2 Year Time Deposit

6.9

3 Year Time Deposit

6.9

5 Year Time Deposit

7.7

Sukanya Samriddhi Scheme

Sukanya Samriddhi Scheme or SSY is a government backed scheme under the “Beti Bachao, Beti Padhao Yojana”. You can invest in Sukanya Samriddhi Scheme if you have a girl child below 10 years of age.

These accounts have tenure of 21 years or until your girl child marries after the age of 18 years. The Sukanya Samriddhi Scheme offers an interest rate of 8.4% for the July to September 2019 quarter.

You can invest a minimum of just Rs 250 a year in the SSY account. The maximum would be Rs 1.5 Lakh a year. You have to invest at least Rs 250 a year for 15 years from account opening date. This account earns interest until maturity.

SSY is tax-efficient vis-a-vis FDs. SSY enjoys the EEE benefit. You get the tax deduction under Section 80C. The interest and amount withdrawn at maturity are tax free.

These Instruments offer higher rates than FDs:

Instruments

Interest Rates (%)

POMIS

7.6

SCSS

8.6

SSY

8.4

RBI Savings Bonds

7.75

PPF

7.9

EPF

8.65

POTD 5 Years

7.7

Now, you don’t need to avoid FDs completely. Just spread out the investments across these instruments. Keep liquidity, safety and taxation in mind before opting for an investment.

See Also: Types of Fixed Deposits

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