Fixed deposits offered by the banks are likely to see a reduction in the interest rates from the next month. In fact some banks have declared a cut in the deposit rates of these safe instruments.
State Bank of India, country's largest bank has lately announced a reduction of 50 and 25 basis points on fixed deposits with maturity period ranging from 91 days up to five years and above 5 years respectively. These rates are applicable from December 1st.
At the same time, the second largest player in public sector, Punjab National Bank has also decided to cut the peak deposit rate by 100 basis points to 9.5% from 10.5% for tenure ranging between 1and 2 years.
Also, interest rates on deposits with other maturities are expected to fall by 25-75 basis points in the coming week. The deposit rate for 180 days to 1 year will reduce by 25 basis points to 8.25% while for 2 to 3 years deposit, the interest rate will come down to 9.5% from 10%.
The interest rates on term deposits in the range of 3 to 5 years and 5 to 10 years will be cut by 50 basis points to 9.25% and 25 basis points to 9% respectively.
The bank had last revised the deposit rate in October through increasing the interest rates by 25 to 75 basis points under various maturities.
So investors who prefer fixed deposits during these tough financial times would need to trade off between the lower returns from these long-term deposit instruments and the safety linked with them.