Retail inflation at 6.3%. Real returns from FD could be negative

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The rising inflation directly impacts your investments and lifestyle. If you have parked money in fixed deposits of one of the big banks, your returns will be below zero if you consider inflation.

State Bank of India (SBI) offer the highest rate of 5.4% on of 5-10-year FDs. The highest fixed deposit rates for ICICI Bank and HDFC Bank are 5.5% for a tenure of five years, one day to 10 years. It means your returns are minus 80-90 basis points if you are not a senior citizen. One basis point is one-hundredth of a percentage point.

SBI offers 6.2%, and ICIC Bank and HDFC Bank offers 6.3% for the same tenure for seniors. At the current inflation, the actual returns could be zero for even for seniors.

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IMPACT

Here’s how the negative returns will impact you if inflation remains high. Suppose that a person has 60 lakh investments in an FD and is dependent on the income for monthly expenses. At 5.5%, the monthly payout from FD will be around 28,000. The payout is higher if depositors choose the annual payout option and lower if they choose the monthly payout.

Assume that the depositor was able to meet the monthly expenses from his FD income. But as inflation rose 6.3% for May, the depositor will need 1,764 more to meet his expenses.

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OPTIONS

If you are a senior, opting for schemes designed for retirees may offer a little comfort. Senior Citizen Savings Scheme, for example, offers 7.4% interest rates, and the payout is quarterly. Pradhan Mantri Vaya Vandana Yojana offers 7.4%-7.66%, depending on the payout.

For others looking at safer fixed income instruments, Reserve Bank of India floating rate bonds are an option that offers 7.15% interest at present. However, the rates can change twice a year (on 1 January and 1 July).

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Post office time deposit offers 6.7% interest rates on five-year deposits, where the interest payout is once a year.

Among fixed deposit, individuals can diversify their investments among non-banking financial companies (NBFCs) and small finance banks. HDFC Ltd offers up to 6.65% rates on a 99-month tenure deposit for those who opt for either cumulative option or annual payout. Seniors get 0.25% higher rates.

Bajaj Finserv offers up to 6.5% interest rates for 36-60 months tenure. Seniors get 0.25% higher rates.

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Some small finance banks offer between 6.5% and 7% on FDs for non-seniors and an additional 0.25%-0.5% more for seniors.

(Do you have personal finance queries? Send them to [email protected] and get them answered by industry experts)

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