Fixed Deposit Interest Rates: A Crucial Factor to Pay Heed To

Making investments is very important for every person in the society. The Indian Stock Market is full of plenty of investment options for investors to choose from. From mutual funds, debentures, bonds, equities, bank deposits, etc. there are many options that are available to meet short-term and long-term investment goals. 

Fixed deposits have remained popular investment options for year’s altogether. They are known to offer higher rates of interest than savings accounts. Also known as term deposits, this method of investment is one of the most attractive ones where people can obtain higher returns in the long run. In India, these investment options are relatively ‘risk-free’ whether it is with a large bank or a small one. 

Once the money has been deposited in these accounts, they cannot be withdrawn (as compared to demand deposits or recurring deposits). However, under certain economic conditions (mostly rare) banks may offer lower interest rates. The tenure for these accounts may range from anything from 7, 15 or 45 days to even go up to 1, 5, 7 or 10 years. They are known to be safer options when compared to Post Office Schemes (covered by the Deposit Insurance and Credit Guarantee Corporation-DICGC). 

The most important factor that a person pays attention to when opening such an account is the fixed deposit interest rate. This plays a very important role on the returns that one obtains at maturity (of the period/tenure). 

However, recently have you noticed that smaller banks offer higher rates of fixed deposit interest rates than the bigger ones? Some of the smaller banks such as Lakshmi Vilas Bank Ltd, Karnataka Bank Ltd and City Union Bank Ltd. in the country are known for offering rates as high as 9.75% and 9.50% respectively (both Karnataka Bank Ltd. and City Union Bank Ltd.). This is drastically different when compared to the bigger sized banks in the country such as Yes Bank, ICICI Bank, State Bank of India and HDFC Bank. 

While bigger banks are known to have a better command in the certificate of deposit and commercial paper market (as a result of better credit ratings), smaller banks are known to have lower bargaining power in the market. Besides this, the cost that is involved in raising ‘short-term paper’ is higher for the smaller sized banks than the larger ones. Thus, they offer higher rates of interest to retails customers so as to get deposits. 

Other than this, the smaller banks are also known to have a smaller sized retailer base when compared with bigger banks. Thus they try to attract customers by offering attractive interest rates on FD’s. These smaller sized banks are known to be concentrated in specific regions/parts of the country. This may lead to the banks not being able to access different branches or points, which may in fact be a dampener for customers.

 

Although interest rates are important, it is also important to pay attention to the bank services that are offered as well. So, when you are making a choice, it is very important, not only to pay attention to the interest rates but also to the banking services also.

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