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  • Fixed Deposit BYTES FROM OUR KITCHEN

    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.

    Customer Reviews

    • SBI Fixed Deposit
      "Good FD account"
      0.5 5.0/5 "Blown Away!"
      I have invested the fixed deposit with State bank of India. Since the branch is nearest by my home and they have given me a locker facility hence i have chosen the fixed deposit with SBI. Overall, I'm very much satisfied with the services with SBI.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Jan 18, 2019
    • YES Bank Fixed Deposit
      "Fraud by Yes Bank"
      0.5 1.0/5 "Really Bad"
      Yes Bank has not credited Interest for my Fixed Deposit. On enquiring they gave me a story that the interest amount has been adjusted towards TDS. They have not provided credit entry for the interest and the debit entry for the TDS respectively.
      Was this review helpful? 2
      , bhopal
      Reviewed on Jan 11, 2019
    • ICICI Bank Fixed Deposit
      "Smart Investment"
      0.5 5.0/5 "Blown Away!"
      In ICICI fixed deposit interest rate is around 6.75% per annum, I opened the FD through online. I have invested Rs. 1 lakh they wont take any charges for the pre matured fixed interest. I believe the interest rate is good compared to the government bank.
      Was this review helpful? 2
      , yamuna nagar
      Reviewed on Jan 10, 2019
    • Kotak Fixed Deposit
      "Average service"
      0.5 3.0/5 "Satisfactory"
      I am having a Fixed Deposit account with Kotak Mahindra bank, they provide good services when compared to other banks. I get good interest rate in returns after the maturity period which is after 3 years. Customer support is average with Kotak Mahindra bank.
      Was this review helpful? 1
      , chennai
      Reviewed on Jan 10, 2019
    • HDFC Bank Fixed Deposit
      "Hassle free"
      0.5 5.0/5 "Blown Away!"
      I also have a fixed deposit account with HDFC Bank. The process to open this account is easy. I can do it online. They also offer a good rate of interest on the account. The bank has always been up to the mark to ban with. It is very convenient and easy.
      Was this review helpful? 3
      , noida
      Reviewed on Jan 09, 2019
    • IOB Fixed Deposit
      "Better Banking Experience"
      0.5 4.0/5 "Great!"
      I have invested a fixed deposit with Indian Overseas Bank. My wife has recommended me about this bank since she is working over there. I invested the money of Rs. 50000. I don't remember about the tenure period. Before 1 years, i have invested the money with them.
      Was this review helpful? 0
      , tiruchirapalli
      Reviewed on Jan 09, 2019
    • ICICI Bank Fixed Deposit
      "Good Deposit"
      0.5 5.0/5 "Blown Away!"
      I have invested a fixed deposit with ICICI. There is no reason for selected this bank. They have offered me a interest rate of 6.5% and there is no processing fee. I have invested the money 8 months before. This is a one year plan. I'm happy about the services provided by the ICICI for this account
      Was this review helpful? 1
      , thane
      Reviewed on Jan 04, 2019
    • Corporation Bank Fixed Deposit
      "Average"
      0.5 4.0/5 "Great!"
      I had account with Corporation Bank and its very old one. I put fixed deposit before 3 to 4 years. The interest rate was around 7% which was minimum compared to others but am satisfied. I have deposited for 5 years. Actually have not taken any benefits, just have invested. The customer service was okay.
      Was this review helpful? 3
      , pune
      Reviewed on Jan 04, 2019
    • HDFC Bank Fixed Deposit
      "Good service"
      0.5 4.0/5 "Great!"
      I do have a fixed deposit account with HDFC Bank. They are giving good interest. I can manage this account on line. I have chosen HDFC because of bank financial is good. I have just started long time, The process was very quick and it was done through on line.
      Was this review helpful? 4
      , thane
      Reviewed on Jan 02, 2019
    • SBI Fixed Deposit
      "Best Investment plan"
      0.5 5.0/5 "Blown Away!"
      I have taken fixed deposit account in State Bank Of India . They are not charging any charges for the account . I used to get income tax benefits . Am satisfied with the customer service and response.They are giving good rate of interest . Overall am happy with my account .
      Was this review helpful? 5
      , ahmedabad
      Reviewed on Dec 29, 2018
    • review Fixed Deposit
      "Good online features on FD"
      0.5 5.0/5 "Blown Away!"
      In Saraswat bank they are providing the interest around 7% per annum, the minimum amount Rs. 5000 to max, still my FD is running with this bank. The online options are excellent without visiting I can track the interest and deposit amount through online.
      Was this review helpful? 1
      , pune
      Reviewed on Dec 17, 2018
    • HDFC Bank Fixed Deposit
      "Convenient FD with HDFC"
      0.5 5.0/5 "Blown Away!"
      In HDFC I can deposit for minimum of Rs. 5000 to max amount. I done the investment of one time payment around Rs.6 lakhs. I can chose the tenure period based on the convenient, it gives the interest of 7% its maximum. I can open and close the account through online.
      Was this review helpful? 6
      , pune
      Reviewed on Dec 17, 2018
    • SBI Fixed Deposit
      "Very Good Service"
      0.5 4.0/5 "Great!"
      I had made this investment pretty long time back and the services which they had provided so far has been good. The interest rate with them has been good and the growth with the investment has also been good. Their customer support has been helpful in guiding with everything.
      Was this review helpful? 9
      , bangalore
      Reviewed on Dec 14, 2018
    • YES Bank Fixed Deposit
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It has been a good service which they had been providing so far and i had started this investment a log time back. Their customer support has been helpful in guiding me in the investment plans and explaining with the growth of the investment. The interest rate with them has also been good.
      Was this review helpful? 4
      , bangalore
      Reviewed on Dec 14, 2018
    • Citibank Fixed Deposit
      "Not satisfied with the service"
      0.5 1.0/5 "Really Bad"
      I had started this investment a pretty long time back and they had been providing a good service. Their customer support has not been responsive and i do not suggest any one to make an investment through them. There has not been a good growth with the investment.
      Was this review helpful? 1
      , bangalore
      Reviewed on Dec 14, 2018
    • SBI Fixed Deposit
      "Good Investment Plan"
      0.5 4.0/5 "Great!"
      I have taken fixed deposit account in STATE BANK OF INDIA . They are not charging any charges for the account . I used to get income tax benefits . Am satisfied with the customer service and response.They are giving good rate of interest . Overall am happy with my account .
      Was this review helpful? 4
      , mumbai
      Reviewed on Dec 12, 2018
    • Post Office Fixed Deposit
      "Good investment plan"
      0.5 5.0/5 "Blown Away!"
      I have started investing in the fixed deposit almost more than 5 years. I have invested a variable amount in different times. They have offered me a interest rate of 7.5%. The response was good. I have chosen the post office because of the safe and security.
      Was this review helpful? 14
      , guwahati
      Reviewed on Dec 12, 2018
    • YES Bank Fixed Deposit
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have the fixed deposit account with the Yes bank and the interest rate they have given me is good, also the customer service is good too they have co-ordinated with me well they time to time update me about there date of pay my next fixed deposit date.On line banking services are fine one too and am really happy with them.
      Was this review helpful? 0
      , ahmedabad
      Reviewed on Dec 11, 2018
    • Axis Bank Fixed Deposit
      "Average bank to avail fixed deposit"
      0.5 4.5/5 "Excellent!"
      I have chosen the Axis bank for my fixed deposit. I have deposited around of Rs. 50000. Since they are providing very good services in their branch. They have offered me a interest rate of 6.5%. I put the money in 2015. I have visited their branch many times and the service is very much prompt. I had no issues with them.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Dec 11, 2018
    • ICICI Bank Fixed Deposit
      "Satisfactory"
      0.5 5.0/5 "Blown Away!"
      My fixed deposit is with ICICI Bank. I had to go to the bank and meet the executive and open the account. I can close the account online. There is a lock in period for 12 to 13 months. The interest I earn is satisfactory. I have a deposit of 70K. Overall good.
      Was this review helpful? 1
      , new delhi
      Reviewed on Dec 07, 2018
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