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How frequent are fixed deposit interest rates revised and why?

How frequent are fixed deposit interest rates revised and why?
June 21
12:02 2022

There are many ways in which a bank allows its client to make more money, one of the more popular choices being Fixed Deposits. FDs are considered to be a great investment as it has a low-risk appetite and guarantees assured returns. In a fixed deposit, the investor essentially deposits their money with the bank for a specific amount of time. A rate of interest is applied on the sum total of money submitted, which is usually higher than what gets offered for your savings bank account. In other words, it is an easy way to make more money just by depositing your money in the bank.

This plan is quite flexible, as the investor can invest money for a fixed term, starting from a minimum of 7 days to up to 10 years. Different banks offer different tenures for a fixed rate of interest, so it is best if you consult your bank representative before taking any decision. Once you are happy with your investment, there are two ways you can get the FD interest. For one, you can directly credit it to your account at regular intervals. Secondly, you open a recurring deposit account on which you will get the interest when the FD matures.

The maturity amount will only be projected in your account when the tenure of deposits ends. However, it is very important that you know, that once you have locked the rate of interest on your tenure, you cannot take the money out before maturity. In case you do, the total sum of interest will be deducted, and some banks often cut a penalty as well.

What are some features of a FD?

There are a number of characteristics of a Fixed Deposit that makes it a great investment option. Here mentioned are some of the most notable ones.

  1. It is very easily renewable
  2. As per the Income Tax Act 1961, your tax will get deducted from the FD interest at the source.
  3. Even though FDs offer a lower rate of liquidity, it comes with higher interest rates, which can be a great option for many.
  4. You can only deposit money in a fixed deposit account once. If you want to deposit more amounts later, you might have to open a new FD account.

Some types of Fixed Deposits

Going into the Fixed Deposit venture without much knowledge of what it essentially is, can be a road to failure. Although the above-mentioned information gives you a basic understanding of what FDs are, you need to know the main types to make the most profits. There are essentially two main types of FDs, namely, non-cumulative and cumulative FD.

In a non-cumulative FD, the interest rates are offered on an annual, quarterly, or monthly basis. You, as the investor, are allowed to choose one that fits your requirements. However, non-cumulative FDs are known to offer lower rates of interest when compared to cumulative FDs. This is ideal for people who desire a regular income from their savings.

On the other hand, cumulative FDs offer the compound interest only on a yearly or quarterly basis. The interest will be paid to the investor when the FD matures. The good thing however is that cumulative FD offers a much higher interest rate. This is perfect for investors wanting to save more money and grow their savings faster.

What do you need to know about FD rate cut fluctuations?

According to several types of research, if the country is facing a macroeconomic condition like high inflation, the RBI might adopt to a stricter monetary policy, which helps regulate the available credit of the country. They essentially increase the repo rates, in turn, rising the fixed deposit rates. The Cash Reserve Ratio helps bring in more liquidity to the whole system. This cut might also have a long terms effect on the current rate of interest on fixed deposit in Indian overseas bank. Even though repo rates and the CRR cut can gravely affect the home loan segment, FD rates also lessen. This might also be the reason for most banks to cut interest rates on fixed deposits in specific maturity baskets.

Factors affecting FD rate change

  • Alteration of repo rates:

FD rates are often directly linked to the rate of inflation. All investors should keep a keen eye on the inflation rate as it can affect the lending rates as well. Nevertheless, in a number of instances, in spite of the investors getting lower returns due to inflation, the banks do not hike the deposit rates, as it might impact their bottom line.

  • Prevalent liquidity situation:

When compared to tight liquidity, with adequate measures, banks do not have to focus much on retail FDs for their own needs. However, in times of tight liquidity, most banks will have to turn to their own deposits, further changing the FD rates.

  • Demand and supply:

Lastly, if there has been a drop in the desire for credit, banks usually decrease the FD rates. Quite the opposite is true when there is a hike in its demand, as banks increase the rates in order to make more money.

Why should you consider investing in an FD?

As is evident from the information present, investing in an FD account is quite fruitful. Some of the main benefits you can enjoy if you invest in a Fixed Deposit include:

  1. Greater stability and perhaps the most safety when it comes to investment instruments
  2. There are assured returns and you do not have to worry about loss of principle amount.
  3. Getting an interest payout on a monthly basis can help you manage all monthly expenses better.
  4. Any market fluctuation will not affect your fixed deposits, making it an even safer plan.
  5. It offers higher rates of interest than any other investment instrument.
  6. Senior citizens can enjoy the highest rates of returns from FDs.

With this information, you can now prepare for your FD and know when to get one. Rest assured, an FD account is highly advised for any salaried personnel.

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