Interested to know why the bank Fixed Deposit rates are decreasing. Actually, I invested the amount in SBI and Andhra bank FDs, whose rate of interest are 7.7 and 8 for 1 year time period respectively. Please suggest is there exist any other Fixed Deposits schemes where can I invest?
Debashis-Let us say Mr.X is a bank and he takes the deposit from you. Will he keep that money with him idle? No, in return he has to lend someone. Mr.X lend the money at 10% and promised you the interest on FD at 9% then he will earn the profit of 1%. However, if no one is there to take the loan at 10% and all need money from Mr.X at 9%, then will he take the deposit from you at 9%? No, he will reduce the interest rate on FD to 8% or 7% to make the profit on such lending. This is what is happening now. To regulate the inflation, RBI is decreasing the rate. This ultimately turning into reducing the FD rates.
In decreasing interest rate bonds are good. You can use the debt mutual funds. But do remember that longer the duration of bond maturity higher will be the volatility in your money. Hence, invest in bond market based on the duration of your goal and risk you can take.