Understanding Term Deposit Rates: A Comprehensive Guide to Smart Investing

Term deposit rates refer to the interest rates offered by banks on their term deposit accounts, generally FD and RD. These rates may vary depending on factors such as the deposit amount and tenure.

For instance, some banks offer higher interest rates for a shorter deposit tenure of 12 months. However, to make an informed decision, it's important to consider your financial goals and aspirations before choosing a tenure. The point is don't just go by higher interest rates. Take factors such as your investment objective and the compounding effect of FDs (more on this later) for long-term growth into consideration.

Let's first understand how term deposit rates vary across tenures. For better clarity, we have considered Ujjivan SFB's FD Rates (as on 24 April 2025).

*Disclaimer: Interest rates are subject to periodic changes and the applicable interest rates will be given based on the date and time of receipt of the funds by the Bank. Data as on 24 April 2025.

So, why these interest rates vary for different tenures?

One of the primary reasons is that banks strive to maintain a balance between their assets and liabilities. Assets include loans and investments owned by the bank, while liabilities comprise obligations to depositors and creditors. are what the bank owns, such as loans and investments. To strike a balance between ALM (Asset Liability Management) ratio, banks offer different rates for different tenures. However, this is only one of the reasons. Other reasons may include liquidity concerns, competition with other banks, etc.

The interest on RDs is calculated and compounded quarterly, meaning it's calculated on the principal amount plus any interest earned during previous quarters. At the end of each quarter, the interest earned for that particular quarter is credited in the RD account. At the time of maturity, the total amount accumulated includes both the principal amount deposited and the interest earned over the period.

Before we talk about Fixed Deposits, let's first understand cumulative and non-cumulative FDs.

A cumulative FD is a type of deposit where the interest amount earned on the deposit is reinvested into the principal amount instead of being paid out periodically. The interest is compounded quarterly or annually throughout the deposit tenure leading to higher overall returns.

Unlike cumulative FDs, non-cumulative FDs offer periodic interest pay outs (monthly, quarterly, or annually). These FDs are suitable for depositors seeking a regular income stream.

Banks generally offer flexibility in choosing interest pay-out frequency based on the depositor's preference and needs.

Unlike simple interest, which is calculated only on the principal amount, compound interest considers the accrued interest from previous periods. It's like a snowball effect where your money multiplies as it earns interest not only on the principal amount but also on the interest you have already earned. Compound interest coupled with high-yield FDs, has the potential to offer maximum returns. However, this facility is available only for cumulative FDs.

Understanding term deposit rates is crucial for making informed investment decisions. By comparing rates, calculating potential earnings, and considering other factors such as investment period and interest payment frequency, you can find the best term deposit account that suits your financial goals.

Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products, including Digital Fixed Deposit. 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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