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.