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Friday, January 15, 2016

What are the factors affect the changes in Interest Rate of Fixed Deposits?

 

What are the factors affect the changes in rate of Fixed Deposits?

Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit.

Policies of the Reserve Bank of India - The several norms and restrictions posed by the Reserve Bank of India, in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc.

Recession - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial market. With this release the funds in the cash reserve reduces and hence again affects Fixed Deposits, loans etc.

Inflation - When prices of goods and items become more expensive on a daily basis, the opposite of recession, banks and lending institutions are scared of the devaluation of the rupee, and reducing the purchasing amount over the amount lent out. To ensure the losses of interest over the amount lent. Banks will offer higher interest rates on Fixed Deposits.

Fixed Deposit changes over a period of years

The rate of Fixed Deposits have changed over the last few financial years, in 2000-01 the rate was the highest, and stood at 9.50% -10.00%, the rate started to make a downward trend when they fell to 8.00% - 8.50% in 2001-02. They still continued to decline with the years to come in 2003-04 the fixed deposit rates fell to 5.25% -5.50%. In 2004-05 the rate climbed a little and went up to 5.75% - 6.25%, 2005-06 6.25% - 7.00%, and in 2006-07 stood at 6.50% - 8.00%. The current year's fixed deposit rates stands at anywhere between 6.25% - 9.25%, provided by different banks for different amounts and terms of these fixed deposits.

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