POSTED BY December 12, 2011 3:44 am COMMENTS (5)ON
I have a lump sum amount getting matured from a bank FD. I invested this amount when the FD rate was around 7.25%. I dint remove it in between though the FD rates went up in recent times, because it was in FD from a longer time and removing it was actually a loss. I want to re-invest the money in bank FD again. I do have different streams for mutual funds and I don’t want to use this money for mutual funds. Also, I don’t need this money in near future. My question is, for how much period I should invest it. Now the FD rates are around 9.75 (for 500 days) and 9.25 for 5 yrs and above. Last time, I got only 7.25% for many years. So I want to be careful this time. If I invest for only 500 days, though I get 9.75%, after 500 days from now, the interest rates might come down and I will need to re-invest for less percentage. At the same time if I think of investing for more than 5 yrs, I do get 9.25%. But what are the chances that the interest rates goes beyond 9.25%. Even if it goes up, what are chances that it goes up beyond 10%?. I am just trying to think the best possible duration. As per my knowledge, the interest rates will go down from here. Even if it goes up, it won’t go up more than another 0.5%. Are there strong chances that the interest can go up to 10.5 or 11% in the next 5 years? If i invest for 5 years, I will get a fixed 9.25% even if the interest rate goes to 7.5% in the next couple of years. So I am trying to make a balanced decision. Could you please help me with this.