As Bank Rates Dip, Where To Get Better RoI

With bank interest rates trending downwards in the last three years, it has become imperative to look at alternative instruments of investments.

Earlier this year, the State Bank of India slashed its interest rate for deposits under Rs. 1 crore. The rate went from 4.00% -- where it had been for six years -- to 3.50%. Other banks are expected to lower their rates as well.

Interest rates have been trending downwards for the last three years, and yields from various fixed return instruments have lowered. Since mid-2014, the Reserve Bank of India has lowered the repo rate seven times without raising it once. For investors who prefer conservative forms of instruments such as fixed deposits and PPF, the lowering of the interest rates means poorer returns. Therefore, the question must be asked: what are their alternatives.

Let’s examine the market for instruments with fixed returns. What are the options offering best post-tax returns? What are smarter alternatives? What is the level of liquidity associated with these instruments? And most importantly, how safe are they? Let’s take a look.

Small Bank Deposits

While the major banks will lower their deposit rates in tandem with the RBI’s rate cuts, there will always be smaller banks who will offer higher interest rates to remain competitive. There are many small banks today that will offer deposit rates that are higher than the SBI’s offering by up to 3.5%, subject to terms and conditions. For example, DBS has advertised its savings account which provides returns of 7% on daily balance under Rs. 1 lakh, 6% on daily balance between Rs. 1 lakh and Rs. 10 lakh, and 5% on daily balance between Rs. 10 lakh and Rs. 1 crore. If you want to generate higher returns from a liquid instrument, you may be better served by holding your cash in such a high interest-generating savings account.

Liquid Mutual Funds