A 75 basis points cut in the repo in March 2020, banks have started reducing the interest rate on their fixed deposits (FDs). The COVID-19 pandemic’s impact on the economy would be severe and that banks will continue to reduce interest rates in the near term. The RBI will make sure liquidity remains high and interest rates are low so that it can push the economy up after the lockdown is over. Experts are of the opinion that due to COVID-19 Lockdown the assets of many small private financial institutions and co-operative banks will turn into non-performing and therefore it is essential to take case of your Fixed Deposits considering the following points.

  • Interest shall go down but offer assured return and safety

With loans being priced at low interest rates due to the linking with the repo rate, it becomes difficult for banks to continue paying higher interest rates on fixed deposits to investors. So, fixed deposit interest rates will come down further because of lower loan rates of repo-inked schemes. But at the same time the deposits offer assured returns and capital safety in the present market conditions.

  • Deposit for shorter Tenure

Although interest rates across tenures are on their way down, it doesn’t really make sense to lock your money into a longer tenure FD. Experts recommends tenures of “not more than one year” at these rates and further Renew it on maturity. Rates are down at the moment because of a sluggish economy on account of the pandemic.

  • Choose your bank with care

Just because one bank offers a higher FD rate than others, you shouldn’t rush to park your money in it. It’s not an open and shut case. In September 2019, RBI had imposed restrictions on Punjab & Maharashtra Co-operative Bank and depositors are still to recover their money. Yes Bank too faced restrictions for a brief while in March this year. Taking a lesson from this event, fixed deposit investors were should prefer public sector banks or leading private banks.

Senior citizens and investors who have retired recently shouldn’t take risks with their retirement money. Half a percentage lower return is always better than risking a large principal amount while investing in fixed deposit schemes. Avoid investing in fixed deposit schemes of co-operative and small finance banks that offer higher rates of interest to tempt depositors and all hues.

  • Distribute deposits in different leading banks

Apart from choosing your financial institutions carefully, make sure you don’t invest your entire corpus that you’ve set aside for FDs in one bank. Spread it across two to three banks. FDs up to Rs 5 lakh (this includes savings account as well, in those banks) are backed by the deposit insurance scheme. This cover, provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), will pay every depositor, through the liquidator, when a bank fails.


Pawan Kumar Agrawal


PPG Group

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