A Fixed Deposit (FD) is a secure way to invest a lump sum or your long-term savings. As a non-market-linked option, it suits low-risk investors. However, your FD’s returns depend largely on the interest rate offered by the issuer, so choosing carefully is essential.
Several platforms now offer an online FD process, making investments quick and convenient. This allows you to easily compare interest rates and tenure options. You can also manage and track your deposits digitally without physical paperwork.
How Interest Rates Affect Fixed Deposit Returns
Interest rates are a crucial factor in determining the returns earned from fixed deposits. This percentage indicates how much your invested money will grow annually. Simply put, a higher interest rate results in a greater return on your investment.
When comparing different FDs, you need to choose the one with the highest interest rate to maximise your earnings. However, the interest rate alone does not determine your total profit. Other factors also affect your overall returns, such as tenure, tax implications, and more.
Additionally, the interest rate can change based on economic conditions and the bank’s policies. This explains why different banks offer different interest rates. It is essential to understand the factors affecting the FD interest rate.
Why Different Issuers Offer Varying FD Interest Rates
Banks cannot randomly choose the interest rate they offer. The interest rate depends on the Reserve Bank of India’s repo rate. This is the rate at which banks borrow money from the Reserve Bank of India (RBI). Additionally, economic conditions also influence the interest rates they offer you.
As inflation and economic instability rise, the RBI may increase the repo rate, making it more expensive for banks to borrow funds. In response, banks often raise their fixed deposit interest rates to attract more deposits, thereby strengthening their financial stability.
This benefits both the issuer and the investor. You will also find varying interest rates across the same issuer due to internal factors. One such factor is the tenure.
Booking an FD for a longer tenure enables you to earn a higher interest rate, while a shorter tenure yields a lower rate. A longer tenure supports banks’ liquidity management. For example, booking an FD for 3 months will offer a lower interest rate compared to a five-year lock-in period.
Similarly, making a large lump-sum investment earns a higher interest rate. For instance, investing ₹5 Lakhs in an FD for 3 months will offer a lower interest rate compared to investing ₹5 Crores for the same period.
You can review the variation of interest rates across different terms on the issuer’s website, enabling you to make informed decisions to meet your financial and investment goals.
Smart Tips to Choose the Best FD Interest Rates
Here are some strategies to help you get the maximum interest rate on your fixed deposit investment across all the issuers.
- Choose an Issuer with a Higher Rate
The easiest way to redeem the highest returns from your fixed deposit is to choose the bank offering the highest starting rate. For a chosen tenure and investment amount, you can check the interest rates of your shortlisted issuers and then compare them.
- Opt for the Longest Tenure
Since the fixed deposit grows with the power of compounding, the longer you invest, the higher your returns. You need to choose the longest tenure feasible for your financial goal. For a long-term goal, such as a child’s wedding or retirement, opting for reinvestment is smart. This way, you can invest at a higher rate without any delays.
- Check the Repo Rate
Recently, the Reserve Bank of India cut the repo rate for the third time this year, lowering it to 5.50%. This suggests that banks will likely reduce interest rates on loans and fixed deposits in the coming months. However, this adjustment may not happen immediately. To secure better returns, it is advisable to book fixed deposits now while banks are still offering the older, higher rates.
- Use the FD Calculator
To avoid any confusion and to choose the highest possible return, you need to use a fixed deposit calculator available on several platforms, such as Bajaj Markets. This online tool gives you estimated returns in just a few minutes.
You can select a preferable tenure and decide on the investment amount. Then, compare interest rates and visualise your amount at maturity with accuracy. Using these tips, you can choose the fixed deposit with the most lucrative interest rate.
In addition to the interest rate, you need to choose the issuer offering flexible tenure options and easy liquidity. You can explore suitable options on Bajaj Markets.
