Things You Must Do Before The FD Rate Falls!

Do you know bank FDs are so popular among senior citizens? It’s because bank FDs offer high security, they are highly liquid and offer very attractive rates for senior citizens. But what if the interest rate is expected to fall soon, can seniors who don’t want to invest immediately do something to enjoy the higher interest in the future? Here are some important things that senior citizens can do before the FD rate falls.

Switch Your Existing Low-Interest FD To A Higher One

If you have existing FDs which are booked at a lower interest rate compared to the interest rate currently offered by the banks, you may switch such FDs to one with a higher rate. For example, suppose you hold an old FD with a 5-year tenure offering interest of 7% pa, its maturity is after 3 years. It means, that after 3 years when your exiting FD matures then the interest rate may again come down to the same level and you may not get the high interest rate that is offered in the present market. The current FD rate for a 5-year maturity is offering interest of 9% pa, so you may break the existing FD to start a new one at a higher interest rate. While breaking the existing FD and switching to a new one, you must consider the penalty levied by the bank.

Choose FDs That Offer The Highest Interest For The Longest Period

The FD interest rate varies from bank to bank and also depends on factors such as tenure, FD size, FD variant, depositor’s age category, etc. So, when choosing the FD instrument, look for banks that offer the best rate of interest for the tenure in sync with your needs. If you are not sure about the tenure, choose FD that offers the highest interest for the longest period and instead of investing the entire fund in a single FD, divide your fund into multiple FDs. Multiple FDs will allow you the option to liquidate some of your FD investment to meet your financial needs if there is an emergency and you don’t have to disturb your entire investment.

Start RDs If You Don’t Want To Invest A Lump-Sum Amount

What if you don’t have adequate funds to invest in the FDs but you don’t want to miss the opportunity of booking an FD at a high interest rate? You can start Recurring Deposits (RDs) that offer a similar interest rate that is offered in FDs. You can invest a fixed amount every month for appropriate tenure and get high interest on such investment. You can also start multiple RDs of different maturities in sync with your financial planning.

Things To Keep In Mind

When investing in FDs, don’t invest the entire fund with a single bank. Try to choose different banks and avoid an exposure of more than Rs 5 Lac in each bank as deposits up to Rs 5 Lac in a bank are insured by DICGC. Also, avoid floating rate-based FDs as the interest trend is downward and interest on floating rate FDs will get reduced.

The author is an independent financial journalist

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)