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Money Sep 6, 2012

SBI cuts rates: Why you should park your cash in FDs now

By Bindisha Sarang

State Bank of India (SBI), the country's largest lender, today cut fixed deposit (FDs) rates by 50 basis points across tenures.

For instance, for FDs below Rs 15 lakh with maturity of one year to less than two years will be 8.50 percent. Rates on FDs above Rs 15 lakh and less than Rs 1 crore too have been cut. For instance, a 180-day FD, which had 8%, will have 7.50%. The rates are effective from 7 September.

Rate cut by SBI. AFP

Should you invest now:Other banks are expected to follow SBI. So, should you start parking funds in FD before other banks too cut rates? "Yes" says, Pankaj Mathpal, Mumbai-based, Certified Financial Planners. "Rates are expected to fall further. If you are looking for a risk-free investment, investing in an FD, now is a good idea."

As many as five banks have already cut rates for various retail loans. Hence, there is a good chance that FD rates too will see a cut soon. "Depending on your investment horizon, going for debt instruments such as FD and NCD at the present time is good. But do keep your asset allocation in mind," saidMathpal.

The SBI's rate cut may be a bad news for most pensioners and retirees who prefer to invest in FDs, to generate a regular source of income. It's best if they make the most of the current higher rates and invest in FDs, before the rates start falling even further.

Also, those who need risk free investments to fund a short-term goal, like a daughter marriage, could consider FD as an option now.

by Bindisha Sarang

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