BEST Fixed deposits and risk free investments – JAN 2021

Here at EveryFin, we have written about most investment instruments – Equity, real estate, gold, mutual funds, you name it. But the most read article on our website, is this one called Best Fixed Deposits and Risk-Free Investments (Sep 2020). We are not sure if it is because we have done a cracking job covering the subject or because our readers love these investments for what they are. Nevertheless, to stay up to date, we are doing an updated coverage on this subject. Our excellent intern, Ramya Bharati, has got most of the updates covered below.

Oh, and have you read our post on how to invest your hard earned money?

Highest interest rates on SB accounts

Last time around, we told you that IDFC and RBL bank offer high-interest rates on SB accounts. We have expanded this coverage to more banks that are offering generous terms for everyday savings accounts. We said to you last time around, we are saying it this time around too – This high-interest rate party on SB accounts may not last very long. But till the time it is around, let’s jingle and mingle. Here is the list.

BankAmountInterest Rate
AU FinanceRs.10 lacs to Rs 5 Crores7.00%
Bandhan BankRs.1 Lakh to Rs.50 Crores6.00%
IDFC BankUpto Rs 1 crore7.00%
Jana Small Finance BankRs 5 crores to Rs 50 crores7.00%
Utkarsh Small Finance BankIncremental balance above Rs 25 lakhs7.25%

Highest interest rates on FDs

Small finance banks continue to offer the highest interest rates on fixed deposits/term deposits. Remember about DICGC insurance? If not read our post here.

DICGC guarantees your deposits up to a maximum of Rs.5 Lakhs. But given that the RBI has been safeguarding depositor interests (case in point: LVB), some are arguing there is no upper limit to the maximum deposit guarantee. Nevertheless, here are the updated rates of interests, the amount they apply to, and the duration of the term.

BankFD TypeAmountDurationRate of Interest (per annum)
JANA small finance bankRegularLess than Rs 2 crores3 to 5 years7.25%
JANA small finance bankFD PlusMore than Rs. 15 lakhs2 to 3 years7.50%
Equitas Small Finance BankRegularLess than Rs 2 crores2 to 3 years7.00%
Utkarsh Small Finance BankRegularLess than Rs 2 crores700 days7.00%
Suryoday Small Finance BankRegularLess than Rs 2 crores5 years7.50%
North east small finance bankRegularUpto Rs 1 crore730 days to less than 1095 days7.50%
AU Small Finance BankRegularLess than Rs 2 crores60 months 1 day to 120 months6.75%
RBL BankRegularLess than Rs 2 crores3 years6.75%
Ujjivan small finance bankRegularLess than Rs 2 crores1 to 2 years6.50%
IndusInd BankRegularLess than Rs 2 crores3 years to below 61 months6.50%
IndusInd BankIndus Tax Saver SchemeLess than Rs 2 crores5 years6.50%
ESAF Small Finance BankRegularLess than Rs 2 crores1 to 2 years6.50%

Post Office Savings Schemes

We love post office savings schemes. We love them so much that we dedicated an entire newsletter to describe the schemes and tell our readers Rabindranath Tagore’s story about The Post Office. You can read it here. Here are the updated interest rates on some of the risk-free safe savings options offered by the post office.

Savings Scheme NameTermRate of Interest(p.a)
Time Deposit5 years6.70%
Senior Citizens Savings Scheme5 years7.40%
Monthly Income account5 years6.60%
National Savings Certificate5 years6.80%
PPF15 years7.10%
Kisan Vikas PatraMatures in 124 months6.90%
Sukanya Samriddhi YojanaDepends on the age of the girl child7.60%

If you are a senior citizen

Senior citizens have it good everywhere. Most banks and financial intitutions offer an additional 0.5% in interest rate across different savings schemes.

Bonds and Debt Funds

Just exactly how debt funds work and what influences their returns can be found in the previous edition of this post here.

Here is a short summary of it.

Government Bond Funds are very good alternatives to fixed deposits. But they carry interest rate risks. There are 2 key levers that impact how much returns you earn from bonds.

  1. Actual interest rate movement– When interest rates go up, bond prices go down and vice-versa. In a declining interest-rate environment, bond prices appreciate, and you typically earn higher returns.
  2. Duration of the underlying
    • The price of longer duration bonds is more sensitive to interest rate movements compared to shorter-duration bonds.e., when interest rates rise, longer duration bonds suffer a bigger fall in value than shorter duration bonds and vice-versa.
    • Longer duration bonds typically offer higher YTM (yield to maturity) compared to shorter-duration bonds. (YTM is the rate of return you’ll end up earning should you hold a bond to maturity). This is because interest rates are higher over longer durations.
    • In theory, over a particular time period when interest rates (expectations) don’t change, longer duration bonds offer higher returns than shorter-duration bonds. This is because of a concept in finance called rolling the yield curve.

Given this background, long-duration g-secs offer the best chance of earning returns at par or better than fixed deposits in a declining interest environment (like the one we are in now).

Below is a list of long-dated mutual fund securities (meaning that they carry the highest interest rate risk). However, given that we expect interest rates to go down even further from current levels in the next few months, these offer the highest return potential.

Read our predictions for 2021 to find out why we expect interest rates will go down here.

Here are the names of GILT funds (with government bonds as the underlying) that we are invested in.

  1. Kotak Gilt investment growth direct plan
  2. SBI magnum gilt growth direct plan

These funds we recommended earlier are also just as good.

  1. DSP 10-year G-sec fund
  2. Nippon India GILT securities fund – direct, growth

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