How Lucrative Are FDs?

New Delhi, November 22: Following in the footsteps of major Indian banks that cut down the interest rates on fixed deposit (FD) after the Reserve Bank of India (RBI) rate cut, private sector lender ICICI Bank’s revised rate on the investment instrument is the latest to come into effect from November 20. 

ICICI Bank offers fixed deposit (FD) rates for different tenure, starting from 4 per cent to 6.60 per cent. However, senior citizens will continue to get a 50 basis points (bps) higher interest rate with the bank, ranging from 4.50 per cent to 7.10 per cent on FDs maturing for different tenure.

"The latest revision in the FD card rates of ICICI Bank follows the broader trend of the current falling interest rate regime. Almost all banks have been reducing their FD card rates ever since  RBI started to cut its repo rate in its February 2019 Monetary Policy Committee meeting,” Naveen Kukreja, CEO & Co-founder of Paisabazaar said.

Indian banks changed the FD rates after RBI in October announced its fifth repo rate cut this year by 25 bps and the reverse repo by 25 bps (100 bps = 1 per cent). The repo rate currently stands at 5.15 per cent and reverse repo rate at 4.90 per cent. 

Repo rate refers to the rate at which banks borrow money by selling their securities to the Central bank, while reverse reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks. 

HDFC Bank, State Bank of India (SBI), Punjab National Bank (PNB), Axis Bank, Kotak Mahindra Bank, Yes Bank, Bank of Baroda (BoB), IDBI Bank have already changed FD interest rates this month. Here’s the FD interest rates offered by various banks, as on 22 November, 2019.

“Depositors should consider their liquidity requirements, investment horizon and financial goals while selecting their FD tenures. Not doing so might lead the depositors to go for premature withdrawal, which usually comes with a premature withdrawal penalty of up to 1 per cent," advised Kukreja.