Fixed Deposit (FD) is the most demanded and risk-free financial instrument, wherein you can invest a lump sum amount for the stipulated period at a fixed rate of interest. Though the market offers various instruments to increase wealth, the fixed deposit is the first option usually.
As the rule says – “higher risk leads to higher returns”. But FDs are risk-free investments with a non-fluctuating rate of returns. It is this safety for which investors forgo higher interest rates.
Reasons for Rates Fluctuations
There are various reasons for the fluctuating rates offered by fixed deposits. The fixed deposit rates decided by banks and NBFCs are decided on a few considerations:
Whenever inflation rate is above the FD rate, there is no actual return from FDs. The effective interest rate for you in the bank fixed deposit is low or even negative after accounting for inflation.
As inflation rises, the central bank reduces interest rates in order to control inflation and vice-versa when inflation is low. It makes sense to go for an institution like Bajaj Finance that offers higher interest rates than the banks.
Net Interest Margin (Revenues of banks)
Banks lend out money and earn interests when we lend our money to them. On the other hand, we deposit money in FDs where banks pay us interest, so in order to earn the profit, banks need to gain more interest through loans and pay lesser interest to depositors. Yet, as you will notice, Bajaj Finance offers one of the highest fixed deposit rates in the market. You can avail a care-free interest of 8.75% for regular FD and a rate of 9.1% if you are a senior citizen.
Demand and Supply
With the changes in economic cycles and demand for housing and industrial loans, the demand for deposits also gets affected. If the lending scenario of banks is not too strong, and with a higher number of fixed deposits, the too much money in the banks may lead to low interest as there are more people to receive interest than people paying interest on lending. In order words, whenever there is the large influx of cash in the banking system just like the scene after the demonetization, there were more funds available in the bank for lending to the customers, though investment cycle remained same; this leads to the fall in FD interest rates. This means the bank has to cut down there lending rates which further leads to a reduction in FDs rates.
Steady Interest Rate Instruments
Though Bajaj Finance revises its rates from time to time, it still has a high return on FDs with a maximum of 9.1 % as compared to FDs offered by other institutions. It is the highest in the fixed deposit category and offers no risk.
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How you can earn high returns on FDs
You can go for the cumulative options in a secure, high paying fixed deposit from Bajaj Finance. Adopt the approach of laddering your FDs across varying interest rates and varying tenors to create a steady flow of interests and redemption. You can look forward to an extra 0.25% on renewal. Also, investing for higher tenors like 3 to 5 years with such a high-interest rate will help in fulfilling your financial goals. You can manage multiple FD accounts online using Experia-your online fixed deposit account.