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Do fixed deposits have a fixed or floating interest rate?

By Finserv MARKETS - Aug 26,2019
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Do fixed deposits have a fixed or floating interest rate

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Saumya had been planning on investing a small sum of money from her salary into a fixed deposit but wasn’t sure if it would be the smartest move given the existence of more lucrative options like mutual funds. But it was the assurance provided by bank deposits which was comforting to her.

Fixed deposit simply means a sum of money deposited for a specific duration. You can opt for a fixed deposit either through banks or non-banking institutions. Fixed deposits with available on Finserv MARKETS can fetch you a higher rate of interest every year, making it more appealing than a regular bank deposit.

Fixed deposits guarantee you a definite amount of money at the end of your chosen tenure no matter how bad the market gets in between. And if Saumya had learnt anything from her father’s experiences, the market can get really, really bad in the wink of an eye. Many financial instruments in the market like home loans etc come with floating interest rates while fixed or bank deposits offer a fixed rate of return predetermined at the time you start investing in the scheme.

At this point, it is important to understand the difference between floating and fixed rates of interest by looking at them closely to decide whether fixed deposits are worth your while.

A self-explanatory name, floating interest rate signifies a rate of interest that is free-flowing, moving in sync with the market fluctuations along with an index. So, in case the interest rate floats down, it would lower your returns. But then again, the rate may float upward and increase your returns upon the completion of the tenure too. Therefore, when it comes to long-term investment like a fixed deposit, it is best to stay away from a floating rate, and this is especially true when interest rates are very low like they are now. Sometimes, there shouldn’t be any room for surprises in life.

Basically, when you have a floating interest rate, you are essentially gambling, hoping for better returns on your investment. And in a volatile market, such a move is fraught with uncertainty, it could significantly increase or decrease your rate of return.

Floating interest rates are gaining traction especially among home buyers. Even banks and NBFCs like Bajaj Finserv are offering home loan interest (floating) at low and attractive rates, starting from 8.7%.

Fixed interest rate, on the other hand, mean exactly the opposite. In this case, the interest rate doesn’t change with market fluctuations. Fixed interest rate is very popular among investors owing to the safety and security they provide. Therefore, investing in secure tools like fixed deposits should be on every adult’s financial planning agenda. Innovative products like Fixed Deposit available on Finserv MARKETS offers you a hassle-free process online with minimal documentation and lucrative interest rates. Bajaj Finance Fixed Deposit offers lucrative interest rates to its investors that can go up to 8.95%.

Fixed Interest rate becomes the first preference when the market is sluggish. Recently, the Reserve Bank of India called for quicker transmission of interest rate cuts after the central bank lowered the key repo rate by 75 bps in 2019. Since then, many public and private banks, as well as NBFCs have lowered their interest rates on fixed deposits. While the scenario bodes well for borrowers, people opting for new bank deposits now are having to settle for a lower interest rate.

It is important to note here that there is a variant of fixed deposit that offers floating interest rates. It is a popular product in the US and Europe, but mostly unheard of in India.

Floating rate term deposits as the name suggests, are a variant of fixed deposits, in which the rate of interest is not fixed for the entire tenure of the deposit. In the case of floating rate deposits, the rate of interest moves in tandem with a reference rate, which is periodically reset. This deposit allows you to take advantage of the interest rate changes without closing and re-booking the fixed deposits. Thus, this variant of fixed deposit is ideally suited for the financially literate investor, who is not averse to taking a call on the directionality of future interest rates/inflation. It is important to note here that majority of adults in the country struggle with financial planning and financial literacy is not very common among the masses. Given this limitation, it is only prudent to choose safety and security of your returns on your bank deposit. By taking a fixed deposit available on Finserv MARKETS, you can get the plan rolling in no time as you do not have to wait in serpentine queues at a bank. All you need to do is tap your fingers a few times and your fixed deposit is up and running. Just submit the online application form and a representative will get in touch with you for all the additional information and queries like the documentations required. All you need to do is to submit the application form, a photograph, and your KYC documents. Moreover, Fixed Deposit offers both cumulative deposits and non-cumulative deposits with yearly payouts option. This means that you can choose to get the full interest earned at maturity by choosing a cumulative FD or choose to get regular payouts at intervals of every month, quarter, half-year or year by choosing a non-cumulative FD. The benefits offered by Bajaj Finserv Fixed Deposit definitely make it the best choice if you want to grow your corpus without the risk factor of the market and enjoy steady returns.

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