Reserve Bank of India has again raised its key rates - repo and reverse repo - in an attempt to control inflation. He is the 11th hike in 17 months. The message below did last week the central bank quarterly review of monetary policy is bound to cause heart burns for borrowers, banks began rising interest rates.

Some have called for rate increases necessary, but in some circles, the decision was greeted with surprise, calling it "tough." However, it is good news for applicants with loan rates, rates of FD also thumbs up.

Flavour of the season:
Fixed Deposit Interest Rates - the most popular and often seen as the safest investment - have been inching upward in recent months. After the recent RBI rate hikes, some banks have already increased their rates of FD and many more are expected to do so quickly. Therefore, at this point in time, a combination of attractive yields and capital protection in time deposits made an attractive proposition.

Not completely risk-free:
The only risk that most of the depositors are aware of the failure of the depositors of the bank to redeem the investment at maturity. But once again, deposits up to Rs 1 lakh are insured. Therefore, investment in RS 1 lakh or less are in the certificate of default.

However, there is the risk that depositors do not know or ignore - the reinvestment risk. This is the possibility that if the cycle of interest rates, in turn, may have to settle for a low rate of interest on your deposit at the time of renewal. This is assuming you do not need the money then and, therefore, prefer to extend the term of the investment.

"The period of reinvestment risk is always there. You might be able to earn a good return on your fixed deposit of say a year, but then the interest rate offered may be less," says Suresh Sadagopan, a planner economic audit, financial advisory Ladder7.

Short-term versus long-term:
In general, prices of short-term time deposits in 1-2 years are higher than the deposits of 3-5 years and more possessions. Understandably, individuals tend to lick between shorter-term deposits, since the yield is higher and also the lock-in period is shorter, cutting to wait for the part.

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"The RBI is extremely concerned about the inflation front, and to consider an intervention through monetary policy as a necessity," said Aditya Apte, partner with the firm's financial planning The Tipping Point. "The scenario of interest rates in the future is still foggy - with another increase of 25 basis points the rate of the RBI can not be excluded.

Source: [ET]