Understanding the Fixed Deposit Interest Rate and Factors Affecting it

The fixed deposit is the type of investment product in which you deposit a certain amount of money and fix it for the time period so as to get the interest rate on it. The fixed deposit is the type of secured and safe investment which comes up with the guarantee good returns. The fixed deposit can be done for the small term or mid to large term. The time period for which you can deposit the amount can vary from 7 days to 10 years. The fixed deposit interest rate is also high as compared to the interest rate your money gets in the savings account. It is one of the best ways to get the good return in the most secured way.

The fixed deposit is very popular investment product as it provides the security of returns promised. The investment generally involves risk whereas the fixed deposit is devoid of any such risk factors. Also, you have the prior idea about the amount you will be getting after the maturity period. The fixed deposit is one of the safest and easy to make the type of investment.

fixed deposit interest rates

The fixed deposit has many other advantages as well. If you urgently need the money then you don’t have to break your fixed deposit. You can directly avail the loan from the lender against the fixed deposit and meet your requirements. The fixed deposit falls in the tax deduction scheme under the section 80 (C). The principal amount up to ₹ 1,50,000 deposited for 5 years comes under the tax exemption. Whereas the interest rate gained over the amount is taxable. Also, there is special provision for the senior citizens where the banks pay more interest rate on the deposited amount than that of the others.

Factors affecting the Interest rate of the fixed deposit scheme:

There are many factors that are responsible for the change in the interest rate of the fixed deposit scheme. Few of the factors that affect the fixed deposit scheme are mentioned below:

RBI Regulation-  There are changes in the monetary policies by the governing body RBI like the change in the repo rates and CRR. These factors accordingly change the interest rate of the fixed deposit.

Demand and supply of credit– If there the demand of the credit is more then the rate of interest on the fixed deposit also increases. To meet the demand of credit the banks increase the interest rate so that the number of people will opt to invest their money and as a result, the banks will be able to get the money from the depositor and they can fulfill the demand for the credit. Similarly, if the demand for credit is low the interest rate simultaneously decreases.

Liquidity– The more the liquidity the interest rate tends to decrease and vice-a-versa. The liquidity in the system is the availability of the cash that is required to meet the obligations. If the amount of cash in the banks are more then the rates are decreased while if there is the shortage of the cash in the banks then rates are increased to lure the people to invest in fixed deposit so that liquidity increases to meet the demands of cash.

Inflation– Inflation is the situation in the economy when the rates of the commodities become dearer and there is the fear of money devaluation. In such a situation the rate of interest increases to attract the depositor for the term deposits.

To get the maximum outcome from the fixed deposit interest rates there are certain things that should be in your mind. The principal amount deposited should be selected carefully. Also, you should see the interest rate carefully and compare the rates offered by the different banks before opening the fixed deposit account. You can compare the rates online which will be convenient for you rather than physically going to different banks to know the rates. The selection of the tenure of fixed deposit is also important as the rate of interest directly depends on it. You should read all the penalty clause before opening the account. Read all the documents carefully and look out for the hidden charges if any. To obtain the maximum benefits you will have to look out for all the details before opening an account with your desired bank which gives you maximum benefits.

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