Factors That Influence FD Interest Rates: What You Need to Know
FD interest rates | Image Resource: appreciatewealth.com
People invest money after checking the return on investments and it is the same with Fixed Deposits (FD). When investing in FDs the investors consider the interest rate offered. This is because the interest rate directly impacts the earnings.
An FD with a higher interest rate will ensure maximum growth. To make the best investment decision you should know about what factors affect the FD interest rates. This will also help you to maximise your returns.
Factors that affect the interest rates
Inflation
The FD rates are affected by inflation. As inflation rises people lose their purchasing power. To ensure that the investment best inflation the financiers keep their FD rates above the inflation marker. As inflation increases the FD rates will also increase.
Repo rate
This is the main factor that can affect the hikes or decline of interest rates. This rate is decided by the Reserve Bank of India (RBI). It is the rate at which the RBI lends money to the banks and is directly proportional to the FD rates. Keeping an eye on the repo rates can help you decide which is the right time to invest in an FD.
Investment tenure
The tenure of your investments affects the applicable interest rates and thus your returns. It is more profitable for the banks to hold the funds for a longer time before maturity. Therefore longer tenures have higher interest rates.
Investor profile
Senior citizens get higher interest rates than citizens below 60 years of age. You can use an FD calculator to find out the returns you will get.
Investment type
There are Cumulative and Non-cumulative FDs. The cumulative FDs offer returns directly at maturity and have a higher interest rate. The Non-cumulative FDs offer regular payouts and have lower interest rates.
Credit rating
The financiers with a higher credit rating are considered to be less risky for investors. They offer more competitive FD rates.
By checking out the factors that influence an FD rate you can make informed decisions about where, when and how to invest in FDs to get maximum returns.
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