According to the Reserve Bank of India’s (RBI) basic statistical return (BSR) report for December 2023, term deposits surged to 60.3 per cent of the total deposits, of which senior citizens held 20.1 per cent. The “Quarterly BSR-2: Deposits with Scheduled Commercial Banks – December 2023” showed a significant change in overall deposit composition, with term deposits witnessing an increase while current account and savings account (CASA) deposits saw a decline.

Term deposits grew to 60.3 per cent in December 2023 compared to 57.2 per cent in March 2023. In the April-December period, term deposits constituted around 97.6 per cent of the total deposits on an incremental basis, as per the report.

Which Term Deposit Saw An Increase?

On October 26, 2023, RBI amended the rules to increase the limit for non-callable fixed deposits (FDs) to Rs 1 crore from Rs 15 lakh. So, customers can invest in FDs of less than Rs 1 crore with the option of premature withdrawal. The increase in term deposits in the December quarter was mainly in FDs of Rs 1 lakh to less than Rs 1 crore, FDs with the premature withdrawal facility.

The report highlights that the share of term deposits offering over 7 per cent increased to 61.4 per cent of the total term deposits in December 2023 from 33.7 per cent in March 2023.

The bank rate hikes also contributed to a noticeable jump in term deposits in the third quarter. Women, who typically choose safe options, also made a considerable contribution, with 63.4 per cent of incremental deposits, including term deposits and CASA, in the quarter.

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Is There A Possibility Of Interest Rates Cut?

Rushabh Desai, founder of Rupee With Rushabh Investment Services, says, “Interest rates are in the peak range currently, and I don’t think interest rates would go higher from where they are currently. This is a good time to invest in medium to long duration debt products as with easing inflation in India, and globally, sooner or later interest cut cycle will begin, and this may happen from this year-end.”

According to Preeti Zende, a Sebi-registered investment adviser and founder of Apanadhan Financial Services, “We have been witnessing a good interest rate scenario for a couple of years. Interest rates were increased by RBI because of geopolitical scenarios that led to inflationary pressure. But now, as inflation at ground level is also contained and within an acceptable range, we may be seeing RBI cutting interest rates by the end of this year.”

With the possibility of a rate cut looming and considering the current rate scenario, how should senior citizens choose their options? Should they opt for the highest rate, special tenure FDs like ‘400 days’ or a long-term FD, say, five or 10-year tenure at a slightly lower rate?

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What Should Be The FD Investing Strategy For Seniors?

Zende opines, “The tenure can be based on your requirements. Laddering of FD can be one of the best strategies to get the most from term deposits. As per this strategy, you can make multiple FDs of different durations so that they will benefit from continuing the flow of income whenever these FDs mature. If you do not need the maturity amount, it can be reinvested for future needs.”

While liquidity and guaranteed income are the criteria, Desai suggests including different debt instruments in the portfolio along with FDs to get the most benefits of the interest rate changes. 

He suggests, “It is very important for senior citizens to have ample liquidity in their fixed income portfolio, so it is not advisable to go all in long-term FDs and lock the money in. 

“Also, FDs are not market-linked products; thus, during the interest-rate-cut cycle, debt mutual funds will benefit the most and can give higher returns than traditional FDs. Senior citizens should plan their debt investments properly and invest in all short, medium, and long-duration products depending on their time horizon and the money requirement. 

“Overall, more than 50 per cent of their debt portfolios should be in open-ended products. Senior citizens can look at investing in senior citizen savings schemes, bank FDs, RBI Bonds and debt mutual funds. I would give a higher allocation to debt mutual funds of around 60-70 per cent, keeping the liquidity and future interest rate cycle aspect in mind.”

Whether it is FD laddering or diversifying portfolios with different debt instruments, seniors may decide, based on their cash flow needs and preferences, to get the most from their interest rate-based investment instruments.