Know Factors Which Affect Fixed Deposit Rates in India

If you’re looking for a risk-free investment option that delivers fixed returns over a fixed tenure, Fixed Deposits (FDs) can be an excellent choice. In order to generate high interest income on an FD, it is crucial to compare the interest rates. But, when you compare the FD interest rates of a few banks, you can find a substantial difference in the rates. What are the reasons responsible for these differences? Let’s take a look-

1. FD Tenure

When booking an FD, you can choose any tenure within the minimum and maximum tenure range of the bank. For instance, with AU Small Finance Bank, the FD tenure ranges from 7 days to 10 years.

The FD tenure is directly linked to the interest rate of the Fixed Deposit Account. It is generally seen that banks offer higher FD rates for longer tenures.

2. Invested Amount

Even the amount you invest in the FD Account plays a role in determining the interest you’ll generate on the investment.

Banks generally have categories like FD amounts less than INR 2 crore, and the interest rates vary between them.                

3. Renewals

Most leading banks now offer auto-renewal facilities for renewing Fixed Deposit Accounts. You can opt for FD auto-renewal to generate a slightly higher interest rate.

4. Your Age

Age also influences the FD rates. Seniors or individuals above the age of 60 are offered higher rates compared to individuals under 60 years.

For instance, AU Small Finance Bank offers up to 0.50% p.a. extra interest on FDs booked by senior citizens.

5. Economic Conditions

The economic conditions of the country, including fiscal and monetary policies, are among the most significant factors affecting Fixed Deposit rates.

For example, if the inflation is climbing higher, it generally leads to a higher interest rate offered on products like bank FDs. However, the opposite is true if the inflation is lower.

6. Repo Rate Fluctuations

The repo rate is the rate RBI charges for lending money to all commercial banks in case of any shortfall. Therefore, it directly impacts banks and the interest rate they offer on FDs, retail loans, etc.

The FD rates are generally higher in a rising repo rate scenario, and the rates are lower if the RBI consistently reduces the repo rates.

7. Demand & Supply Conditions

The FD rate changes also depend on the demand and supply of money in the country.

In a growing economy, when the demand for money is higher, the interest rates on bank FDs are also higher. But if the money supply is consistently higher than the demand, the interest rates generally witness a downfall.

A Savings Bank Account provides customers with a simple and secure solution to deposit and access their savings while also generating interest on the deposited amount. However, the Savings Account interest rate is lower than what you can generate from a Fixed Deposit.

One of the primary reasons for this rate difference is their functionality. While a Savings Account is for managing your day-to-day financial needs, an FD is a full-fledged investment product. With a Savings Account, you can deposit and withdraw your savings as required. But with an FD, it is recommended that you remain invested for the entire chosen tenure.

• FD interest rates are riding high on the back of multiple rate hikes by the RBI in 2022.
• This could be an excellent opportunity for customers to generate higher returns from their FD investments.
• Moreover, you can also lock in the current interest rates by booking an FD for a longer tenure so that you don’t have to worry about rate fluctuations.

Learn more about AU Small Finance Bank Fixed Deposits and conveniently apply for your preferred account online (via AU 0101 App/NetBanking/AU Video Banking) or offline to generate high interest on your FD investment. 

Sources:

https://www.bankbazaar.com/fixed-deposit/why-do-fd-rate-cuts-fluctuate.html

https://www.business-standard.com/article/news-ani/these-factors-affect-fixed-deposit-interest-rate-118071000252_1.html