Top 10 FDs with the highest interest rates

This is a good time to invest in fixed income instruments such as bank and corporate fixed deposits as interest rates are higher than what depositors have seen in many years. At the same time, the alternative savings and investment avenues have shrunk with a sharp correction in the equity market and a decline in gold and silver prices.

The benchmark Nifty 50 is down nearly 10 percent from its lifetime high made in September 2024 and many popular mid and small-cap stocks are down 20 percent or more during the period. The benchmark Nifty 50 is down nearly 10 percent from its lifetime high made in September 2024.

Gold, meanwhile, also corrected and is down 5 percent in the last two weeks, its biggest decline in nearly two years. Silver has seen a double-digit price decline in this period.

Also Read: 10 equity mutual funds that gave over 60% returns in the last one year

Similarly, real estate investments are not doing great either. According to the housing price index from National Housing Bank (NHB), home prices have appreciated at an annualised rate of just 2.5 percent per annum in the last three years in the Mumbai Metropolitan Region, one of India’s biggest housing markets. 

According to NHB Residex, home prices declined in quite a few suburbs and satellite cities of Mumbai during the first half of the 2024 calendar year.

Rising volatility and return uncertainty in various asset markets make fixed deposits an attractive option for savers and investors right now.

This is the right time to lock in your savings at higher interest rates before the Reserve Bank of India starts cutting them early next year. Here are 10 FDs and fixed-income products that are best for savers and investors right now.

1. 8.05 RBI Savings Bonds, 2024 

This is a floating-rate fixed-income product offered by the Reserve Bank of India for long-term savings and investments. The interest rate on these bonds is reset every six years – at the beginning of January and July. 

It currently offers an interest rate of 8.05 percent, which is higher than most bank FDs. 

The only downside is that you must stay invested for 7 years, which may not suit all savers and investors. Also, you cannot lock in interest rate at the time of subscription unlike bank FDs but then it also opens up the possibility of a hike in interest rate in future. The bond is like a half-yearly income plan and interest earned on the bond is deposited directly in the bondholder's bank account every six months.

Also Read: Five steps to get out of high debt

2. Post office deposits

The post office fixed deposits have also become attractive now with 7.5 percent interest on a 5-year deposit. The yields are similar to long-term bank FDs but they offer higher safety as post office deposits are directly backed by the government of India. Savers can also consider National Savings Certificates – also sold in the post office that currently offers 7.7 percent interest per annum.

3. Shriram Finance FDs 

The fixed deposit scheme by non-bank lender Shriram Finance is one of the most attractive right now with an effective yield of 10.1 percent for a 50-month cumulative deposit. Investments in corporate deposits are riskier than those in bank FDs but the 50-year-old lender has a strong balance sheet and never defaulted on its deposits and liabilities. Short-term investors can also consider its 15-month tenure FD which offers an effective yield of 8.24 percent, higher than most bank FDs.

Its long-term rupee borrowing is currently rated AA+ or AAA by credit rating agencies, indicating a very high degree of safety for investors.

Also Read: Five simple ways to save and grow your money

4. PNB Housing Finance FDs 

The housing finance company offers an annualised yield of 8.85 percent for 60-month deposits, one of the highest in the industry. The company is currently rated AA, which is a notch lower than some of its bigger peers but it still offers a high degree of safety. This is a good option for long-term savers who won’t mind a bit of extra risk for higher returns.

5. Bajaj Finance FDs 

The country's largest non-bank retail lender Bajaj Finance offers a juicy 8.6 percent yield on its FDs with a tenure of 42 months. However, at Rs 15,000, the minimum investment requirement is on the higher side compared to others and may not suit everyone. The Bajaj group lender is rated AAA by credit rating agencies which means the highest degree of safety for investors. This is a good option for risk-averse investors.

6. M&M Financial Services FD

One of the top non-bank lenders in rural areas and smaller towns, M&M Financial currently offers 8.05 percent interest on its fixed deposits with a tenure of 42 months. This is a good option for long-term savers and investors willing to take some risk. The company's long-term rupee borrowing is AAA-rated thanks to it being part of the Mahindra group- one of the country’s largest business groups.

7. LIC Housing Finance FD

The home loan company offers an interest rate of 7.75 per cent on a three-year tenure, which is one of the best combinations of tenure and yield among corporate FDs. The company's long-term borrowing is AAA-rated, which offers the highest degree of safety that would assure risk-averse investors.

8. Smaller non-bank lenders 

Smaller non-bank lenders such as Muthoot Capital and Manipal Housing Finance offer even higher interest rates on their FDs but these higher yields come with relatively greater capital risks. These institutions are rated a few notches below their bigger peers lowers the safety quotient for long-term savers and investors.

9. IndusInd Bank 

It currently offers the highest interest rate of 7.75 percent for a fixed deposit with a tenure of 1 year to below 1 year and 3 months. The bank is AA+ rated currently which offers a high degree of safety for savers.

10. Fixed deposits by public sector banks 

If safety and liquidity are the prime concerns, savers should opt for fixed deposits by public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda and IDBI Bank among others. However, the best FD rate by public sector banks is currently in the range of 7 to 7.25 percent for a deposit with a tenure of around 2 years. Another option is AAA-rated private sector bank FDs such as HDFC Bank, ICICI Bank and Axis Bank which currently offer 7.25 percent interest on FDs with a tenure of around 2 years.

The best option for savers would be to divide their corpus across four to five lenders to balance the return and the risk. For example, an equal split of corpus among the five-highest yielding FDs would generate interest of around 7.85 percent.

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

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