What Factors Influence Fixed Deposit Interest Rates?

When making investments, you need to be mindful of a few aspects. This includes the interest rate of your investment vehicle. It determines the potential of your preferred scheme. It also helps you estimate the returns you can expect upon maturity. Hence, many people opt for a Fixed Deposit.

An FD is known for its steady and relatively good interest rates. It is also popular because of its easy-to-follow structure. But what exactly determines the interest rates for such investments? Well, many factors influence the rate structure. Knowing about them is imperative to leverage them to your advantage.

1) FD types

Besides Regular Fixed Deposits, various other types satisfy different investment needs. These include the FD for senior citizens, minors, Non-Resident Indians, Tax-Saver, etc. Since they have varied functions, they do not offer a similar interest rate on FD.

2) Age

Age is also a factor affecting interest rates. For example, senior citizens earn the highest interest through FDs. If you are above 60 years, you should consider opening a Senior Fixed Deposit to enjoy such offerings. It lets you earn an added interest of 0.5 % to 0.75%. The objective is to aid your post-retirement life financially. You can even open a Minor Deposit Account if you have a child.

It is an effective medium to save for their future educational needs. However, the rate of interest will not be as high.

3) Deposit amount

Your principal amount dictates your interest rates to a great extent. A larger sum gives a higher percentage and vice versa. Thus, investing in an FD is wise if you have surplus funds. You can deposit higher investments monthly to enjoy a better interest rate quickly.

4) FD term

When you lock in your funds in an FD, banks use them to provide loans to other customers. The longer the loan tenure offered, the higher the interest rates are. As a result, you get lucrative returns on your locked finances. Hence, the Fixed Deposit term highly influences the interest rate. A longer tenure gives you higher interest and vice versa.

It is good to determine based on your preferred returns and liquidity needs. That way, you will strategically obtain the best interest rate on FD.

5) Withdrawals

Generally, banks offer deposits as fixed investment options. So, withdrawing from them before maturity results in a penalty. It is deducted from the outstanding interest on your Fixed or RD Account. Although not significant, such charges negatively impact your final returns. Thus, you must choose the term carefully and tactfully.