Floating rate term deposits (FRTDs) are a form of fixed deposit in which the FD interest rate is not fixed for the entire term of the deposit but shifts in lockstep with a reference rate that is reset on a regular basis. Floating FD allows you to benefit from interest rate fluctuations without having to close and re-book your Fixed Deposits.
As a result, Floating Rate Term Deposits are perfect for the financially savvy investor who isn't afraid to bet on the directionality of future interest rates and inflation. The rates offered by Floating FD are correlated with the Bank's Treasury Bill rates, which are auctioned every two weeks on the RBI website, and with a mark-up that will be reset once a year.
Floating Rate Fixed Deposit are a form of fixed deposit in which the interest rate is not fixed for the entire term and fluctuates with market rates. Banks use their base lending rate as an index, and deposit rates are reset periodically.
The cost of fixed rates is marginally higher than the cost of floating fd rates. Set rates are marginally higher than floating fd rates. Choose a fixed rate home loan if you are satisfied with current interest rates and are fairly certain that interest rates will rise in the future. In the case of fixed rate home loans, there is a prepayment penalty.
Set interest rates ensure that the mortgage interest rate remains constant over the term of the loan. Mortgage interest rates can fluctuate with the market with floating or variable interest rates.
Dissimilar to a standard FD calculator, the floating rate will be the base rate plus a margin or spread. For example, a debt's interest rate could be set at six-month LIBOR + 2%. This simply means that at the end of each six-month cycle, the rate for the following period will be determined using the current LIBOR plus a 2% spread.
If interest rates fall, you will be able to pay off your debt sooner if you keep your payments the same. Since the rate is floating, it has the potential to rise above fixed-term rates. If the interest rate rises, so will your expenses, potentially putting a strain on your budget.