fixed deposits

FD Interest Rates – Know About Fixed Deposit Interest Rates

Rising fixed deposit (FD) interest rates are a buzz all around. India witnessed an increase in the value of deposits – around 9.5% year-on-year in September 2022. The recent 0.5% rate hike in September 2022 is the fourth hike since May 2022. With the hike in repo rate by the Reserve Bank of India (RBI), bank FDs can offer high-interest rates, making them more enticing. Currently, the repo rate is 5.9%. 

New Bank Fixed Deposit Rates

Fixed deposits are free from market fluctuations; therefore, they are stable investments. A higher FD interest rate is an add-on to assured returns. It can go as high as 7.25% in the prevailing financial market.

FD depositors earn at a pre-defined interest rate based on various factors, including the type of FD, tenor, deposit amount, investor’s age, etc. Let us elaborate on these factors impacting FD interest rates.

Driving Factors of FD Interest Rates

– The Lock-in Period

FDs are flexible in many aspects, including Maturity or lock-in period. The interest rate across fixed deposits differs that the rates increase/decrease with the maturity periods. Investors generally use FDs with a longer savings horizon. Funds deposited for a longer term can offer higher returns. If your investment horizon allows, you can consider opening an FD account for a long tenor. You can deposit for up to 20 years.

– Deposit Amount

A higher deposit amount invested for a longer period can increase your FD interest rate. In FDs, your capital is preserved with safety and assured returns. A higher investment will earn a higher return. Simply, the higher the deposit amount, the higher the applicable interest rate. You can calculate FD interest and maturity amounts using an FD calculator.

– The Type of FD

Banks allow depositors to choose from a Cumulative or Non-cumulative FD, depending on their financial needs. The interest amount will vary for both types of FD. 

  • Cumulative FD: In the case of a cumulative FD, the depositors earn compounding interest. The interest is calculated on the principal deposit amount and interest. Banks keep adding the FD interest amount to the principal and reinvest in the FD. You get the total accumulated amount (Principal and Interest) at maturity. 
  • Non-cumulative FD: A non-cumulative FD provides interest payouts at regular intervals, and the interest calculation depends on the choice to receive interest. A bank can provide you with monthly/quarterly interest credit options.

A cumulative FD offers you higher interest rates and helps you to accumulate funds with the magic of compounding interest. It is the choice of depositors looking for wealth accumulation. Otherwise, you can invest in a non-cumulative FD to receive periodic interest payouts and meet monthly financial needs.

– Depositor’s Age

The depositor’s age also matters for FD interest rate calculation. Banks offer additional interest rates to senior and super-senior depositors. Senior citizen FDs are offered an additional interest rate of 0.50% p.a, and for super senior-citizen FDs, it is 0.75% over regular interest rates. Under senior citizen FD, the age limit is from 60 years to < 80 years. And super senior citizen FD starting age is 80 years and it doesn’t have a maximum age limit.

– The Choice of FD Issuer

Interest rates on FDs vary from bank to bank. Therefore, you should make an informed decision to make a deposit. You can open your FD accounts with a renowned bank, focusing on providing the best returns for their clients, and earn at as high as 7.25%.

How FD Calculator Can Help to Know Interest Rates

One of the benefits of FD investment is that you can know your FD returns beforehand. Before choosing an FD, you can use an online FD interest calculator to calculate FD interest. FD calculator is an online and ready-to-use tool provided by banks for free numerous times. It allows you to adjust the figures of deposit amounts, the tenor range, reset the type of FD, etc. An online FD calculator will help you in the following manner:

  • Know your FD Interest Rate: An online FD interest rate calculator helps you to determine the applicable interest rate on your FD. It will vary for different FD tenors and deposit amounts.
  • Compare Returns with Different Banks: An FD calculator is beneficial for comparing an FD’s interest rate and maturity amount with different FD issuers. Hence, it helps in your investment planning competently. 
  • Easy Calculation: As the FD interest is calculated using the compounding interest formula, it is a complex calculation. An online FD calculator helps you to get rid of complex calculations for compound interest calculations. 

Thus, using an FD calculator, you can find out the value of your money over time easily. While planning for fixed deposit investments, consider the key driver of interest rates and maximise your interest income. 

By Michael Caine

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