• Why do FD rate cuts fluctuate

    Fixed deposits (FD) are ideal for investors with a low risk appetite looking for assured returns. Fixed deposits allow investors to deposit their money for a specific period of time for a rate of interest which is typically higher than what is offered for a savings bank account.

    Fixed deposit rate cuts

    According to experts, under certain macroeconomic conditions such as high inflation, the Reserve Bank of India (RBI) adopts a tight monetary policy to regulate the credit available in the country. The RBI typically hikes the repo rates under such conditions (Repo rates are rates at which the central bank lends to several banks across the country). Consequently, banks raise their fixed deposit rates. Cash Reserve Ratio (portion of bank deposits that commercial banks have to deposit with RBI) rate cut brings in more liquidity into the system. The CRR cut has a long term impact on the interest rates on deposits. While repo rate and CRR cut largely affects the home loans segment, fixed deposit rates also plummet. Several banks cut interest rates on fixed deposits in select maturity baskets.

    There are several factors which influence banks to either decrease or increase fixed deposit rates such as the following:

    • Deposit rates are linked to the rate of inflation. Banks should give positive returns to depositors. Investors should, therefore, monitor the rate of inflation, which affects the lending rates. In many cases, despite depositors getting negative returns owing to high inflation, banks do not raise deposit rates, since that would affect their bottom line.
    • Prevailing liquidity scenario in the country. If there is adequate liquidity, banks do not have to focus on retail fixed deposits for their needs as opposed to times of tight liquidity when banks have to turn to their own deposits.
    • Demand and supply conditions. If there is less demand for credit, banks, more often than not, decrease fixed deposit rates. On the contrary, if there is high demand for credit, banks increase fixed deposit rates.
    • Banks typically cut rates in anticipation of a lending rate cut.
    • Falling call rates also signal the amount of liquidity available in the market (banks borrow from the call market for their short-term needs.) If the call market is lending at a lower rate, it in turn, affects interest rates on retail deposits.
    • Banks usually cut interest rates when their fund costs plummet. If the rate of fixed deposits is high, a revision of base rates (basis for retail loans) is less likely unless the high-cost deposit rates are cut.
    • Banks decrease fixed deposit rates in the near-term during times of muted credit demand affecting loan yields, which in turn, mars their net interest margin (NIM).
    Points to remember

    Smart investors can lock in current interest rates by choosing three and five year fixed deposits prior to banks lowering fixed deposit rates. Individuals in the tax brackets of up to 10.3 and 20.6% can opt for such schemes. Secondly, experts suggest that instead of opting for just one fixed deposit of Rs. 5 lakh, investors should ideally opt for five fixed deposits of Rs. 1 lakh each to make partial withdrawal, during a financial crunch. Investors can also choose five year tax saver fixed deposit schemes, which typically offers around 8.75% to 9% rate of interest.

    Overview

    Fixed deposits (FD) are ideal for investors with a low risk appetite looking for assured returns. Fixed deposits allow investors to deposit their money for a specific period of time for a rate of interest which is typically higher than what is offered for a savings bank account.

    Fixed deposit rate cuts

    According to experts, under certain macroeconomic conditions such as high inflation, the Reserve Bank of India (RBI) adopts a tight monetary policy to regulate the credit available in the country. The RBI typically hikes the repo rates under such conditions (Repo rates are rates at which the central bank lends to several banks across the country). Consequently, banks raise their fixed deposit rates. Cash Reserve Ratio (portion of bank deposits that commercial banks have to deposit with RBI) rate cut brings in more liquidity into the system. The CRR cut has a long term impact on the interest rates on deposits. While repo rate and CRR cut largely affects the home loans segment, fixed deposit rates also plummet. Several banks cut interest rates on fixed deposits in select maturity baskets.

    There are several factors which influence banks to either decrease or increase fixed deposit rates such as the following:

    • Deposit rates are linked to the rate of inflation. Banks should give positive returns to depositors. Investors should, therefore, monitor the rate of inflation, which affects the lending rates. In many cases, despite depositors getting negative returns owing to high inflation, banks do not raise deposit rates, since that would affect their bottom line.
    • Prevailing liquidity scenario in the country. If there is adequate liquidity, banks do not have to focus on retail fixed deposits for their needs as opposed to times of tight liquidity when banks have to turn to their own deposits.
    • Demand and supply conditions. If there is less demand for credit, banks, more often than not, decrease fixed deposit rates. On the contrary, if there is high demand for credit, banks increase fixed deposit rates.
    • Banks typically cut rates in anticipation of a lending rate cut.
    • Falling call rates also signal the amount of liquidity available in the market (banks borrow from the call market for their short-term needs.) If the call market is lending at a lower rate, it in turn, affects interest rates on retail deposits.
    • Banks usually cut interest rates when their fund costs plummet. If the rate of fixed deposits is high, a revision of base rates (basis for retail loans) is less likely unless the high-cost deposit rates are cut.
    • Banks decrease fixed deposit rates in the near-term during times of muted credit demand affecting loan yields, which in turn, mars their net interest margin (NIM).
    Points to remember

    Smart investors can lock in current interest rates by choosing three and five year fixed deposits prior to banks lowering fixed deposit rates. Individuals in the tax brackets of up to 10.3 and 20.6% can opt for such schemes. Secondly, experts suggest that instead of opting for just one fixed deposit of Rs. 5 lakh, investors should ideally opt for five fixed deposits of Rs. 1 lakh each to make partial withdrawal, during a financial crunch. Investors can also choose five year tax saver fixed deposit schemes, which typically offers around 8.75% to 9% rate of interest.

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    Customer Reviews

    • SBI Fixed Deposit
      "Good in FD service"
      0.5 5.0/5 "Blown Away!"
      I am having a savings account with State Bank of India hence i have selected the Fixed deposit investment scheme with them. They are providing the interest rate of 8%. I have invested the money 2 years back and there is a lockin period of 72 months.
      Was this review helpful? 35
      , visakhapatnam
      Reviewed on Mar 02, 2020
    • Kotak
      Kotak Fixed Deposit
      "Safe and secure"
      0.5 4.0/5 "Great!"
      Kotak Mahindra bank is a reliable bank and good management thats the reason i have invested the fixed deposit scheme in this bank. They have provided me a interest rate of 7% and i have kept for the period of 1 year and 1 month. Overall, I'm satisfied with their services.
      Was this review helpful? 7
      , ahmedabad
      Reviewed on Mar 01, 2020
    • HDFC Bank Fixed Deposit
      "Safe and Secure"
      0.5 5.0/5 "Blown Away!"
      I have purchased HDFC Fixed deposit which I am renewing for every 13 months. They have given me an interest rate of 7% and There is no processing fee and there is no locking period as well. If I'm withdrawing FD amount before locking period, they are charging some amount.
      Was this review helpful? 19
      , ahmedabad
      Reviewed on Mar 01, 2020
    • Punjab National Bank Fixed Deposit
      "PNB Fixed Scheme is good"
      0.5 5.0/5 "Blown Away!"
      I went to the nearby branch for the Punjab National Bank for taking my fixed deposit as per my family members recommendation. I have invested the money of Rs. 50000 there was a lockin duration of 6 years when i withdraw the money, i got the money of Rs.1 lakhs. They have offered me a interest rate of 7%.
      Was this review helpful? 15
      , jamshedpur
      Reviewed on Feb 27, 2020
    • Post Office Fixed Deposit
      "Good Service"
      0.5 5.0/5 "Blown Away!"
      I was having my savings account from Post office hence i have invested my money into Post office Fixed deposit scheme. I have invested the money of Rs. 25000. There is a lockin period of 10 years. I have invested the money in the year of 2011. Post office service is proper. Overall, I'm happy about the services.
      Was this review helpful? 43
      , chennai
      Reviewed on Feb 25, 2020
    • HDFC Bank Fixed Deposit
      "FD is not good with HDFC"
      0.5 4.0/5 "Great!"
      I have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
      Was this review helpful? 16
      , bangalore
      Reviewed on Jan 31, 2020
    • SBI Fixed Deposit
      "Good support"
      0.5 5.0/5 "Blown Away!"
      I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
      Was this review helpful? 25
      , namakkal
      Reviewed on Jan 18, 2020
    • Kotak Fixed Deposit
      "Good App"
      0.5 5.0/5 "Blown Away!"
      I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
      Was this review helpful? 11
      , bangalore
      Reviewed on Jan 08, 2020
    • Kotak Fixed Deposit
      "Excellent Services"
      0.5 5.0/5 "Blown Away!"
      Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
      Was this review helpful? 9
      , mumbai
      Reviewed on Jan 08, 2020
    • Axis Bank Fixed Deposit
      "Good Savings scheme"
      0.5 4.0/5 "Great!"
      I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
      Was this review helpful? 10
      , kolkata
      Reviewed on Dec 31, 2019
    • Oriental Bank of Commerce Fixed Deposit
      "Good Scheme"
      0.5 5.0/5 "Blown Away!"
      Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
      Was this review helpful? 17
      , bulandshahr
      Reviewed on Dec 03, 2019
    • Post Office Fixed Deposit
      "Good Service"
      0.5 4.0/5 "Great!"
      Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
      Was this review helpful? 64
      , parvathipuram
      Reviewed on Dec 03, 2019
    • SBI Fixed Deposit
      "Good bank for Fixed Deposit"
      0.5 4.0/5 "Great!"
      I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
      Was this review helpful? 36
      , mumbai
      Reviewed on Nov 12, 2019
    • HDFC Bank Fixed Deposit
      "Good one"
      0.5 4.0/5 "Great!"
      Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
      Was this review helpful? 21
      , hyderabad
      Reviewed on Nov 12, 2019
    • Post Office Fixed Deposit
      "Safety deposit"
      0.5 5.0/5 "Blown Away!"
      I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
      Was this review helpful? 117
      , jaipur
      Reviewed on Nov 08, 2019
    • Central Bank of India Fixed Deposit
      "Good Bank"
      0.5 4.0/5 "Great!"
      Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
      Was this review helpful? 14
      , tirupur
      Reviewed on Nov 06, 2019
    • ICICI Bank Fixed Deposit
      "Customer centrice & User friendly app"
      0.5 4.0/5 "Great!"
      I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
      Was this review helpful? 20
      , nasik
      Reviewed on Oct 15, 2019
    • SBI Fixed Deposit
      "Good"
      0.5 3.0/5 "Satisfactory"
      I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
      Was this review helpful? 31
      , tirupati
      Reviewed on Oct 15, 2019
    • SBI Fixed Deposit
      "Interest charges are good. "
      0.5 3.0/5 "Satisfactory"
      I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
      Was this review helpful? 44
      , kolkata
      Reviewed on Oct 01, 2019
    • Dena Bank Fixed Deposit
      "Good plan for senior citizen"
      0.5 2.0/5 "Expected more"
      I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
      Was this review helpful? 18
      , new delhi
      Reviewed on Sep 24, 2019
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