While banks have increased deposit rates over the past few months, the increases have not kept pace with the rapid rise in policy rates.
Transmission of increases in the policy rates to deposit rates usually takes place with a lag.
In fact, SBI’s revision in interest rates is the steepest undertaken by any bank after the most recent change in policy rates. This will likely cause other large lenders to follow suit and raise deposit rates.
For instance, HDFC Bank Ltd. on Oct. 11 raised its deposit rates. Post that, the rate of interest offered on deposits between nine months and a year stands at 5%—50 basis points lower than the comparable SBI deposit.
Similarly, HDFC Bank’s 1-2 year fixed deposits yield 40 basis points less, and 2-3 year deposits bear 45 basis points less. The private bank’s 3-5 year and 5-10 year fixed deposit rates are comparable with those of SBI.
With the increase in rates, fixed deposits are once again becoming lucrative. But investors should bear in mind that they will likely be unable to beat inflation, especially if they fall in the highest tax bracket. The interest received on fixed deposits is taxed at the slab rate.