“Even though companies have raised deposit rates multiple times, the quantum of raise is small to the extent of 10-25 basis points across different maturities to gauge depth of the market and see how much money they can collect,” said Juzer Gabajiwala, director,
HDFC Limited and Bajaj Finance, both top-rated companies, raised deposit rates for the third time in the last couple of months. HDFC has raised deposit rates by 20 basis points for 12-36 month deposits and 10 basis points in the 36-120-month tenure effective June 15, Bajaj Finance has raised deposit rates by 25 basis points for a tenure of 1-5 years, while raised rates by 25 basis points across tenures barring the 48-59-month maturity where it has raised rates by 10 basis points.
Fixed deposits of finance companies are popular among small savers, mainly retirees, who want simple products and regular income from their savings. Retail investors, who have seen their returns from equity come under pressure of late, could also consider these products as interest rates firm up. These deposits offer 175-300-basis points higher interest than that of a large bank.
A 44-month deposit of Bajaj Finance pays 7.35%, while a
FD pays 5.6% for a 3-5-year tenure, giving an investor a spread of 175 basis points over bank deposits. Deposit rates are higher for smaller finance companies with lower credit ratings. Given that rate hikes by the RBI might not be over yet, investors should spread their investments and should not put all money in long tenure deposits at the moment.
“More interest rate hikes are expected over the next 6-9 months, fixed deposit investors will be better off investing in a mix of short tenure and long tenure deposits,” said Anup Bhaiya, MD, Money Honey Financial Services. “Investors can allocate about 60% to shorter tenure of about 12-18 months and the balance 40% to tenures of 36-60 months.”
Analysts said individuals could consider a 44-month deposit of Bajaj Finance that fetches 7.35%, an 18-month deposit of HDFC Limited fetching 6.15% and a 36-month deposit of fetching 7.9% to start with. Senior citizens earn 25-50 basis points higher returns on these deposits.
Bhaiya recommends investors stick to AAA-rated deposits and also spread their investments across different companies.