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What Are FD Interest Rates and Which Factors They Always Changing?

Banks and financial institutions are the FD issuers in India. When you invest in fixed deposits (FDs), your funds remain locked-in for the entire tenor at the same interest rate agreed upon while you open the FD account. You will earn interest at the pre-decided assured rates even after a change in interest rates. Only new depositors will open FD accounts at new interest rates. Over the past year, fixed deposit interest rates have lowered down. Today you will get to know certain factors that affect the FD interest rate in an economy. 

1. Gross Domestic Product (GDP) 

Interest rates are directly linked to the GDP of a country. In general, FD interest rates increase with the increase in GDP and decreases with the decrease in GDP. 

2. Inflation or recession 

Market variables like inflation or recession make the Reserve Bank of India (RBI) revise its monetary policies. A change in the repo rate affects all saving and lending activities in an organized economy. Repo rate is the rate at which RBI buys back securities lent to banks. 

During inflation, RBI increases the repo rate and banks are allowed to provide a good rate of interest to investors. Higher interest rate prompts more savings. Whereas during recessionary conditions, the RBI decreases the repo rates and resultant decrease in deposit interest rates as well. The down interest rates prompt borrowing and spend more. 

3. Liquidity scenario 

The liquidity and the demand-supply situation in the country also affect interest rates due to which growth rate goes up or down. This financial year’s low growth rate has resulted in the revision of the repo rate. RBI has cut down repo rate to balance the demand-supply ratio in the market and hence, the bank interest rate on fixed deposits is low. 

Here you must know that the Non-Banking Financial Companies (NBFCs) are not influenced by the changes in the RBI’s monetary policy because laws regulating all banks do not govern NBFCs. The NBFCs FD interest rates will change for only if the company announces a change in its interest rate. Therefore, company FDs like Bajaj Finance FDs, still, offering higher interest rates than banks, up to 6.85%. You can invest for 12 to 60 months. Existing customers get an additional interest rate of 0.10% over and above the existing rates and senior citizens can enjoy 0.25%. 

Factors affecting your interest income 

When you invest your money with a bank or financial institution, there are some factors that affect interest rates on your fixed deposits. These are listed below here:

1. Customer Category 

When you open an FD account you need to choose customer category from Non-Senior Citizen/Senior Citizen. Depositor’s category will affect interest rates. Senior citizens are offered a higher rate of interest on their fixed deposits accounts. With Bajaj Finance FD, seniors can earn an additional interest rate benefit of 0.25%.

2. Investment amount 

The higher amount of money you want to invest in a deposit will attract a higher interest rate than a low amount of money. The higher the amount, the higher the interest applicable to your FDs.

3. Investment Lock-in Period  

The tenor that you select for your fixed deposits will also impact results. Choose a long term lock-in period to maximize your returns with compound interest. Longer the tenor, higher the FD interest rates.

4. Interest Frequency 

As you know, you can earn cumulative and non-cumulative interest on your FDs as per your preference. Investors who invest in cumulative FDs can enjoy maximum FD returns because their FD interest amount along with the principal amount is reinvested quarterly that fetches compound interest on the interest amount also. 

Market Experts Suggest

Many times, the finance industry has witnessed a historic rise in credit growth. Most market analysts believe that FD interest rates in India are expected to rise. They suggest it is a good time to invest in short term tenor investments. You should ladder your FDs. Open multiple accounts with small amounts than investing all funds in an FD account.

Fixed deposit rates remain fixed once you have locked-in your deposits at a pre-decided rate of interest. Only new depositors can grow their deposits as per the revised interest rates. Over the last year, several factors like recession and economic crisis have impacted the GDP and made the RBI to cut the repo rate down. This caused the FD interest rates to fall. Factors like customer category, invested amount, tenor, and interest payout frequency determine your interest earnings. If you want to earn a substantial interest then you can lock-in your deposits in Bajaj Finance FD that offers a high interest rate along with a flexible tenor and convenient investment procedure.

Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory.

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