A fixed deposit (FD) can be understood as a deposit of money that rewards a higher interest than the usual savings account after keeping your money in a locked-in period. Although they impose certain conditions on the amount, frequency or period of withdrawals, due to its attractive interest rate, stability and guaranteed returns most Indians trust this money instrument with their hard-earned money. When you open a fixed deposit with any financial institution, you primarily lend money to such an establishment. The institution, such as a bank or NBFC, provides a higher rate of interest against your promise of not withdrawing the money for a limited time. The individual financial institution decides such an interest rate against particular Reserve Bank of India’s instructions.
It has been observed that Non-Banking Financial Institutions (NBFC), more often than not, present a higher rate of interest than the banking institutions. However, you must pick an NBFC that has been given good-rating by assessing companies such as CRISIL. Fixed deposits, available on Finserv MARKETS, offer interest rates as high as up to 8.7% with senior citizens capping an extra 0.35%. They are even backed by a stable ICRA MAAA and CRISIL FAAA rating, which means that your investment not only gains the best interest but is also safer.
How often are fixed deposit rates changed?
The Reserve Bank of India (RBI), along with the Union Government, is given with a mandate to promote India as a stable economy. Attributed to this, RBI becomes the primary force that directs the nation’s monetary policy. The repo-rate1, also known as a policy rate, acts as an elemental benchmark in deciding the lending rates and fixed deposit rates of banking and non banking financial institutions. In lay-man parlance, during inflation RBI increases the repo rate to absorb liquidity from the market and regulate credit availability. A tad increase in the FD rate is seen in this scenario as banks look towards the public to borrow. The opposite happens during an economic slowdown. The Monetary Policy Committee (MPC)2 of India decides a repo rate after thoroughly assessing the economy.
Does this mean that the FD rates will change every time the MPC changes the repo-rate? No. While banks take a cue from the RBI regarding the setting of interest rates on loans, as mentioned above, the interest rates offered on FDs frequently rests at the discretion of the banks. Moreover, the conventional banks have been wary of transferring benefits towards the investors as they are beset with internal issues such as non performing assets and low profitability. Thus when RBI changes the repo rate, though lending rates might take a hit, less transmission is observed in FDs interest rate. The Fixed deposits, available on Finserv MARKETS, however, assures that the investor need not worry about such volatility and offers a stable and reliable high interest of upto 8.70%.
Other factors which influences the FD’s rate of interest are:
- Liquidity situation in the country: During adequate liquidity, banks usually do not focus on retail fixed deposits for their need, in comparison to times of tight liquidity when banks have to turn to their own deposits. Thus during liquidity, the banks decrease the FD rates, whereas, under situation reflecting money crunch, the FD rates are increased. It’s due to this demonetisation witnessed banks decreasing the FD rates as their accounts were flush with liquidity.
- Demand and supply conditions: less demand for credit forces institutions to decrease fixed deposit rates. The opposite scenario exists if there is high demand for credit.
- Banks, usually, lower rates in contemplation of a lending rate cut which is influenced by the repo rate instrument.
- Diminishing call money rates also signals good liquidity available in the market. This, if and when the call market lends at a lower rate, it affects interest rates on FDs.
Since 2000, banks have been offering deposit rates in the 9-10 per cent range. Due to a fall in call-money rates over the last two decades, deposit rates in the three to five year tenure fixed deposits fell to 5.5-6.25 per cent. At present, call money rates are around the 6 percent mark pushing FD rates of banks within this window. However, if you open an account with Finserv MARKETS, an investor can expect a stable and reliable interest of upto 8.70%. Apart from the safety-net, the investors are also provided with support in terms of application, submission of documents, and keeping track of fixed deposits with headward transparency and objectivity.
FD’s are presently gaining robust momentum, owing to the lukewarm response of equities, providing a fertile time to head into these waters. Thus if you were looking to open a Fixed Deposit account, it has to be now.
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