17 Apr 2017 17:16 IST

Lock into best rates for the short term

Avoid long-tenure deposits at the bottom of the rate cycle

Deposits rates have been falling sharply over the past year. Aside from the RBI cutting its key policy rate, the sudden influx of money into bank deposits, post demonetisation, has prompted banks to slash deposit rates.

Over the past year, deposit rates have fallen by 125-150 basis points. A few banks are still tinkering with their rates.

But there is some good news, after all. The RBI, in its February policy, changed its stance from accommodative to neutral, implying limited (or no) further cuts in its policy rate. The latest April policy only reinforces the end of the rate cut cycle.

If you have some surplus funds, it would make sense to park them in short-term deposits of 1-2 years. This is because locking into long-tenure deposits at the bottom of the rate cycle could cost you the chance to lock into higher rates when the tide turns. Deposits of even up to one year may be considered, if you do not mind earning a tad less.

So, which are the best options to lock into, now?

If you had invested at the start of the rate cut cycle, say, two years back, deposits in the one to two-year bucket would have fetched you 9 per cent. Sadly, you have to make do with much less now. On an average, banks provide rates of 6.75-7 per cent for this tenure currently. But there are a few better deals.

Check it out

RBL Bank provides the highest rate of 7.5 per cent for 12-24 month deposits. The bank offers slightly lower 7.25 per cent on deposits of 241-364 days. Senior citizens are eligible for an additional interest of 0.5 per cent. Bandhan Bank offers 7.5 per cent for a one-year deposit and 7.25 per cent for 1-2 years.

But deposits offered by a few non-banking finance companies (NBFCs) offer higher rates for the same tenure, though slightly riskier than banks deposits. To keep risks low, you can opt for deposits that are rated ‘AAA’ by rating agencies — implying the highest degree of safety regarding timely servicing of financial obligations.

Deposits of Bajaj Finance rated AAA offer 7.8 per cent for 12-23 month deposits. An additional 0.1 per cent is offered if you are an existing loan customer or plan to renew your existing deposits with the company. Senior citizens are offered an additional 0.25 per cent. Bajaj Finance recently lowered its minimum deposit limit to ₹25,000, from ₹75,000 (if you are a customer in the National Capital Region) and ₹50,000 (in all other branch locations).

Dewan Housing Finance (DFHL), also rated AAA, offers 7.75 per cent for 12-month deposits and 7.8 per cent for 14 and 24-month deposits.

About the companies

Bajaj Finance is one of the largest retail asset-financing NBFCs, focusing on consumer durable loans, personal loans, and two and three-wheeler financing. It also operates in segments such as mortgages, small business loans and commercial lending.

The company’s assets under management (AUM) increased by 33 per cent YoY to ₹57,605 crore as of December 2016. The company’s profit after tax grew by 44 per cent in the nine months ended December 2016 to ₹1,387 crore. Its gross non-performing assets (GNPA) stood at 1.47 per of loans as of December 2016, more or less similar to the levels seen last year.

Dewan Housing is a housing finance company with focus on the low and medium-income group in tier-II and tier-III cities. Its AUM grew by around 19 per cent to ₹78,296 crore as of December 2016 and net profit grew 26 per cent to ₹678 crore for the nine months ended December 2016. The company’s GNPA stood at 0.95 per cent of loans as of December 2016, lower than the 1-odd per cent during the same period last year.