It is imperative for an investor to be well informed and aware of all the factors that influence his returns and the pace at which his corpus grows. While some investors have an appetite for high financial risk others seek risk-free options which offer them assured income.
This has led to a significant increase in the popularity of fixed deposits (FD) as this investment avenue provides various benefits, most importantly it helps to cushion against market volatility, economic distress and losses. As experts emphasize on diversification, finding the right balance is essential by not ‘placing all eggs in one basket’! Therefore, fixed deposits are a great bet offering high and guranteed yields.
What is an FD?
Provided by banks or NBFCs, a fixed deposit is a financial investment instrument which gives investors a higher rate of interest than a regular savings account, until a pre-decided maturity date. You can deposit a lump sum of money in fixed deposit for a specific period. The deposited money then starts earning an interest based on the duration of the deposit.
Factors affecting the FD interest rates
Though FDs are not subject to market variables and have a lower degree of risk associated with them, you should always be well informed about what impacts or influences the rate of your bank deposits. You must keep in mind the following factors:
1. FD issuer
The fixed deposit interest rates differ from one financier to other. You can earn higher interest rates up to 7.85% with Company FDs such as Bajaj Finance FD as compared to bank FDs or post-office FDs which are currently offering interest rates up to 6.5%.
FD interest depends on the tenor chosen by the investor at the time of opening the FD account. The tenor could vary from 7 to 45 days, 46 to 179 days, 180 to 210 days and so on, and finally to the maximum limit of 10 years. Longer the tenor, higher the fixed deposit interest rate. For instance, Bajaj Finance offers 0.05 percent higher interest rate on investment for 24 months as compared to 12 months.
3. Age/Customer category
Age of the policy holder affects the rate of FD interest offered by the bank. Senior citizens usually earn higher fixed deposit interest rates in comparison to regular investors. For instance, at Bajaj Finance the interest rate is 7.85% for senior citizens, which is 0.25% extra than the regular interest rate.
4. Economic condition
Turmoil in economic activities play a major role in the rate of interest offered by the banks on fixed deposits. This is also linked with changes in the monetary and fiscal policy in such scenarios or otherwise. For instance, a reduced repo rate is likely to bring down the FD interest rates. Having said that, these deposits are least affected by the fluctuating economic conditions as compared to other market-linked instruments and offer guaranteed yield.
5. Renewing deposits
You can get higher FD interest rates by choosing the auto renewal facility provided by the lender of your fixed deposit scheme. Also, with this option you no longer have to worry about remembering the renewable dates.
6. Investment amount
The interest rate also depends upon the total amount invested in the fixed deposit.
If you are wondering whether FD rates will increase in 2020 or not, then you can follow the repo rate cuts by RBI. If RBI continues to cut repo rates in 2020, then FD rates will go further down their current levels.
Though there are varied number of factors which affect the rate of interest on the fixed deposits, the most important factors remains that this investment instrument offers a safety net against the uncertain times. Fixed deposits are not only virtually risk-free but also earn the highest rate of return amongst all the other fixed-income investments. Capital preservation has become the top priority of the investors during these uncertain times. Therefore, addition of fixed-income instruments like company fixed deposit to your portfolio can assure guaranteed returns. Opt for Company FDs that offer flexibility in investment terms, along with the safety of your capital, such as Bajaj Finance FD which is rated FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
The number of deposits can be between 6 to 48 and each of these deposits can be locked-in for up to 60 months. The benefit of investing in an SDP is that every deposit is considered as a separate FD and therefore, you might get the prevailing interest rate that is applicable on the date of deposit.
A fixed deposit scheme allows you to grow your income without subjecting your deposited amount to any risk. The interest rate offered on a fixed deposit in India might not be as high as it was a few months before due to the ongoing economic crisis. However, some finance companies like Bajaj Finance are still offering interest rates up to 7.60% for regular customers and senior citizen FD rates are up to 7.85%. You can avail the multi-deposit facility to ladder your investments and you can also save efficiently by renewing your matured FDs. Moreover, you can also invest in an SDP if you are interested in growing your monthly savings quickly.