Here’s Why Interest Rates on Fixed Deposit Fluctuate and what You Can Do About Them

As an investor, you know that investing in Fixed Deposits is considered to be one of the safest and returns-assured options available.

Here, you deposit your funds with a bank or a financial institution of your choice for a given period of time, and a set interest is applied to the funds. This, thereafter, is returned to you as earned interest upon the maturity of the tenure of your Fixed Deposit.

In general practice, it is understood that Fixed Deposit Interest Rate does not fluctuate a lot, and which is why it is considered as safe option even though they do tend to offer lesser but stable returns in comparison to other riskier options. However, macroeconomic factors like inflation, demand and supply for credit as well as overall economic situation of the country may affect the interest rates of your Fixed Deposit.

However, if you are investing in Fixed Deposits, you need to know that Fixed Deposits Interest Rates in India Tend to Fluctuate like any other interest rate, and therefore knowing what affects them can help you make an informed decision when you decide to Open Fixed Deposits (FD) Account Online or otherwise.

Why There’s a Cause For Concern

The changes in the Fixed Deposit Interest Rate is governed by the Reserve Bank of India (RBI), which, based on the macro economic conditions of the country, changes or hikes or cuts the Repo Rate (or the rate at which banks lend the money to each other across the country) to ensure that enough credit is available in the economy.

This eventually leads to raised interest rates on your fixed deposits.

There are certain other factors that may affect the interest rates when you are investing in Fixed Deposits. The range of interest rates offered on fixed deposits, if you have decided to open Fixed Deposits (FD) Account Online or manually, currently lies from 6% to 7.25% and there are chances of it further lowering in future.

Read on to know what these factors are and how you can still earn returns on your funds locked in the fixed deposit.

1. Opt For Laddering:

Since Fixed Deposit Interest Rate varies depending on the banks, you can make use of fluctuating interest rates by splitting your funds into smaller denominations and putting them in the FD accounts. This would provide you with a buffer especially in the present times when Fixed Deposit Interest Rates In India Tend To Fluctuate owing to the Repo Rate cuts implemented by the RBI.

2. Watch For Rate of Inflation:

The current rate of inflation is at an approximate value of 5.05% and therefore it is a positive time for Investing in Fixed Deposit account. Even though the returns are not whooping, fixed deposit investment would offer you an assured as well as secured returns on the funds that you have locked in for a period of time.

3. Current Market Situation:

If there is enough liquidity in the market, then the banks do not focus on charging out from the deposits. However, if there is a crunch situation in the market, then the banks tend to slash the interest rates in order to create liquidity to stabilise the market. So it would be advisable to do a thorough research of the market situation as well as the inflation rate before you decide to open a Fixed Deposit account in your name.

If you keep the above points in mind to note the fluctuations in the fixed deposit interest rate, then you can not only invest your funds properly but also ensure maximised returns on your savings.

Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India.