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Floating Rate Fixed Deposits

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.

Advantages of Floating Rate Fixed Deposits

  • Interest Payment - Interest is paid on the Floating FD quarterly on the last day of each month.
  • Bullet Interest Reset - Every three months, on April 1, July 1, October 1, and January 1 of each year, to coincide with calendar quarters.
  • Liquidity - A loan or overdraft may be obtained against a Floating Rate Fixed Deposit. An overdraft/loan of up to 90% of the FRTD sum can be given at the discretion of the Branch Manager. The loan/overdraft would have an interest rate of 2.0 percent per annum above the deposit rate, with a discount of up to 1.0 percent as per the DoP for Floating FD.
  • Nomination service - This service is provided free of charge.
  • Senior Citizens can receive interest at a rate that is 50 basis points higher than the applicable Floating Rate Term Deposit rate.

Features of Floating Rate Fixed Deposits

  • Any person, singly or jointly minor (himself or through his/her guardian), Karta of HUF may open the account.
  • Bullet Minimum and maximum amounts are Rs. 10,000/-, with subsequent amounts in multiples of Rs. 1,000/-. The maximum sum is less than one crore rupees.
  • Interest Rate on Floating FD - Anchored to the average yield at RBI's 91-Day Treasury Bills Auctions held in the previous three months. Each calendar quarter, this will be reset.
  • Bullet Confirmation of Floating Rate Term Deposit - Since the interest rate is variable and not set, unlike a traditional fixed deposit, it does not have a maturity value.



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Learn More About Fixed Deposits


✔️What is a floating rate fixed deposit?

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.

✔️Which is a better floating fd or fixed interest rate?

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.

✔️What is floating rate and fixed rate?

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.

✔️How is floating interest calculated?

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.

✔️Why are floating interest rates higher than fixed?

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.