Decoding Term Deposit Interest Rates

1. Repo Rate:

The repo rate set by the Reserve Bank of India (RBI) is one of the primary factors that may affect FD rates. The repo rate determines how much interest banks pay when borrowing money from the RBI. When the repo rate increases, banks usually raise their FD rates to attract more deposits.

For example, if the RBI raises the repo rate by 0.25%, banks may increase their term deposit rates by a similar percentage. It's essential to keep an eye on changes in the repo rate to identify opportune moments for investing in FDs.

2. Economic Conditions

The prevailing economic conditions, including fiscal and monetary policies, can impact term deposit rates. In a growing economy with a high demand for money, banks tend to offer higher interest rates on their FDs. Conversely, if there is an excess supply of money or lower inflation, FD interest rates may witness a decline.

For instance, during periods of high inflation, banks may raise their FD rates to attract deposits and compensate investors for the eroding value of money.

3. Tenure

Term deposit rates, like FD rates vary based on the tenure. For instance, for a short-term FD, you may earn higher interest rates compared to regular FDs. However, book an FD based on your financial roadmap and not on the basis of just interest rates.

4. Investment Type

The type of investment you choose can impact the interest rates offered on your FDs. Cumulative FDs that offer returns at maturity usually have higher term deposit rates compared to non-cumulative FDs that provide regular payouts.

If you are looking for steady income, non-cumulative FDs might be more suitable as they offer periodic interest payments. On the other hand, if you want to maximise your overall returns, a cumulative FD might be a better option.

5. Investor's Age

Your age also influences the FD rates available to you. Senior citizens, typically individuals above the age of 60, are often offered higher term deposit interest rates compared to regular depositors. Financial institutions recognise that senior citizens rely on interest income for their retirement and aim to provide them with better returns.

6. Inflation

Inflation can also influence FD rates. As inflation rises, it erodes the purchasing power of money over time. To combat this, financiers strive to keep their rates above the inflation marker. When inflation increases, term deposit interest rates are likely to follow suit.

Stay informed about changes in repo rates, inflation, investment tenures, and other term deposit rate influencing factors so that you can make informed decisions about when, where, and how to invest in FDs to maximise your returns.

Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

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