Fixed deposit (FD) allows you to lock your funds for long periods and earn returns. Considered to be safer than other savings options, FDs offer a convenient way of saving money and earning interest.
While fixed deposit interest rates change often, some banks offer higher or lower rates depending on various factors.
RBI governs the interest rate that banks can pay to customers. However, the banks have complete discretion over how to set interest rates within the established parameters.
Recently, banks have begun to increase interest rates on FDs. This came about as a result of the RBI’s 90-bps increase in repo rates since May 2022.
Rates on fixed deposits vary from bank to bank and may change in response to the state of the economy.
RBL Bank Ltd. is one of the finest and most reputable fixed deposit lenders, offering competitive fixed deposit interest rates.
Updated Fixed Deposit Interest Rate – 2022
Interest rates for fixed deposits from the top Indian banks for amounts under Rs. 2 crores are:
| Bank’s Name | For General Citizens (p.a.) | For Senior Citizens (p.a) |
| RBL Bank | 3.25% to 6.65% | 3.75% to 7.15% |
| IDFC First Bank | 3.50% to 6.50% | 4.00% to 7.00% |
| SBI | 2.90% to 5.50% | 3.40% to 6.30% |
| HDFC Bank | 2.50% to 5.75% | 3.00% to 6.50% |
| Punjab National Bank | 3.00% to 5.60% | 3.50% to 6.10% |
| IDBI Bank | 2.70% to 5.60% | 3.20% to 6.35% |
| Axis Bank | 2.50% to 5.75% | 2.50% to 6.50% |
| Bank of Baroda | 2.80% to 5.35% | 3.30% to 6.35% |
| Canara Bank | 2.90% to 5.75% | 2.90% to 6.25% |
What factors influence fixed deposit interest rates?
The interest rate on fixed deposits is a prime determinant in deciding whether to invest in these products. The following factors influence the fixed deposit interest rate:
1. Tenor
The tenor selected determines how much the interest on fixed deposits varies.
The interest rate will be higher for longer or intermediate tenures and lower for shorter ones.
2. Amount Invested
The amount invested in a fixed deposit also impacts the interest rate that applies to the instrument.
You will receive higher interest rates for larger deposits, and lower deposits will result in lower interest rates.
3. Age
The investor’s age is considered when deciding the interest rate on a fixed deposit. Senior citizens frequently earn interest rates higher than those offered to average investors.
4. Economic Conditions
The country’s current economic, monetary, and fiscal policies significantly influence interest rates for fixed deposits.
If repo rates increase, the interest rate on fixed deposits also increase; if they fall, the rates on fixed deposits also fall.
Banks frequently reduce their fixed deposit rates when there is less demand for loans. In contrast, banks raise fixed deposit rates when there is a considerable demand for loans.
What are the features of fixed deposits?
A few features of a fixed deposit are:
- The investment return is compounded regularly – monthly, quarterly, or annually.
- FD investment terms range from seven days to ten years, and they differ between banks.
- Lenders may allow premature or partial withdrawals with penalties.
- In an emergency, individuals can opt for a loan against FD without withdrawing their investment.
- Returns are guaranteed because, unlike in the case of equity and mutual funds, they are not based on market highs and lows.
- Under section 80C of the Income Tax Act, taxpayers can invest in tax-saving FD plans to reduce their tax liability.
Conclusion
For those who want to invest but have limited tolerance for risk, fixed deposits are a wise alternative.
FD returns are guaranteed, and volatility is low. It is beneficial for those who wish to achieve short-term goals.
Even for those having a medium-to-high risk tolerance, putting some of their investment into fixed deposits helps balance the risk they may face with market-linked investments like stocks or mutual funds.
Moreover, when employees receive a lump sum amount at retirement, many put it in FD accounts to access the monthly interest payments as cash.
Overall, FD is a proven medium for anyone who wants to earn on their deposits in the bank while keeping it safe.
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