Fixed interest rates on Fixed Deposits (FDs) are the key attraction for investors in India. Assured FD returns with a fixed interest rate on FDs help depositors attain their short and long-term financial goals. Once the amount is deposited in an FD account, it will continue to provide interest at a fixed rate.
Increase in FD Return in India
RBI’s (Reserve Bank of India) repo rate impacts several financial instruments directly, including Fixed Deposits. With rising rates, fixed-income instruments have become a more attractive option for investors in India. Most banks are set to increase their interest rates on deposits with the rise in the Repo rate.
The Reserve Bank of India (RBI) and Monetary Policy Committee (MPC) have increased the Repo rate 4X consecutively till September 2022 to reduce the prolonged above-target inflation. The central bank may increase its Repo rate for the fifth time by 0.5% in December 2022, making it 6.4%. Hence, a rise in the repo rate makes FDs more enticing.
Which FD Offers Higher FD Interest Rates?
There are different types of FDs offered by renowned banks, including regular FDs, tax-saving FDs, senior citizen FDs, super-senior citizen FDs and others.
Senior Citizen FDs are for individuals 60-80 years and Super Senior Citizen FDs for individuals 80+ are offered with privileged interest rates. Banks offer additional rate interest on Fixed Deposit of 0.50% to senior citizens and 0.75% to super senior citizens. These are the FDs offering higher interest rates.
However, there are ways to increase returns on other FDs also. To know these ways, you should understand the FD interest rate drivers.
FD Interest Rates Determinants
FD rates tell depositors how much an individual can earn on their parked money during the maturity tenure. The interest rate on FDs remains fixed for the entire tenure, provided the depositor does not break the FD prematurely. Therefore, you must know the key drivers of FD interest rates.
1. Deposit Amount
A higher deposit amount in a bank FD account helps you earn a higher return. The deposit amount can go as high as Rs. 5 Crore. And those who invest in a higher amount for a long tenure can enjoy a significantly high-interest rate on Fixed Deposits. You can look at the bank FDs to increase your FD interest rate with ensured safety. Each bank deposit is insured with Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs. 5 Lakh.
2. Lock-in Period
Different FD tenures offer different interest rates to individuals. Individuals who invest in an FD can choose a suitable lock-in period to retain their funds in an FD account. Experts suggest investing in long-term FDs if their investment horizon allows them. A longer-term FD can increase returns with a higher interest rate. The maturity period can be between 7 days to 20 years with renowned banks like RBL Bank.
3. Choice of Fixed Deposit
Banks allow investors to open an online Fixed Deposit with a reinvesting option (cumulative FD) or periodic payout option (non-cumulative FD). You should choose from these FDs carefully per your financial goals or needs. The interest amount will vary for both options.
- Cumulative FD: Cumulative FDs are offered with the option of reinvestment, and depositors earn compound interest. These FDs increase income by providing interest on interest. The entire principal and interest amounts will be paid as an accumulated amount at maturity.
- Non-cumulative FD: A non-cumulative FD provides interest payouts at regular intervals. Depositors can choose a monthly/quarterly interest as per their requirements. The rate of interest will be set considering the frequency of interest payout.
4. Choice of the FD Issuer
Various banks in India offer fixed Deposits. Almost every bank offers FDs to individuals. Investors must compare FD interest rates with different banks to ensure a high-interest rate.
You can earn up to 7.55% interest rates by making an informed decision. An FD calculator is a ready-to-use tool that can help investors to know the interest amount beforehand.
Thus, Fixed Deposit interest rates can accelerate the growth of invested funds at a steady pace. FDs can help investors more efficiently in the rising rate scenario. Most Indians prefer to park their funds in a bank FD as there are no concerns regarding market volatility.
