Interest rates

Why attractive FD interest rates are vital in a high inflation scenario

Depositors turning to assets like gold could have an impact on financial savings and investment.

In an interview with the Times of India newspaper, the RBI Governor said: “When the central bank communicates that it is focusing on inflation and taking steps in that direction, it gives confidence and a clear message to households. and businesses”.

Additionally, Das said it would anchor inflation expectations and contain second-round effects of supply shocks. Going forward, core and headline inflation may moderate.

However, Das also said, “let’s not forget the depositors with whose savings the banks operate.”

According to the RBI Governor, in an environment of high inflation, if interest rates are kept artificially low, the real rate of return for depositors would become all the more negative and if this happens, depositors may turn to other assets such as gold.

“It will impact financial savings and have an immediate impact on investment,” Das added.

Any changes to the RBI policy repo rate will impact the bank’s lending and deposit rates. However, the amount and timing of transmission of pension policy changes depends on the bank.

In a rate hike scenario, interest rates on term loans such as homes, cars, and individuals, among others, are expected to rise. However, the opposite is true for deposits as they seem to be becoming attractive – offering depositors high returns on their investments in traditional systems, especially in fixed deposits which are less risky than market instruments and also offer returns guaranteed.

Over the past two monetary policies, RBI has increased the repo rate by 90 basis points. In May, RBI raised the rate by 40 basis points and raised it further to 50 basis points in the June 2022 policy. Now, the policy’s repo rate stands at 4.9%.

RBI forecasts an inflation rate of 6.7% for FY23. RBI’s medium-term inflation target is 4% with a range of +/- 2% while supporting growth.

Inflation continues to stay above the RBI comfort zone for the fifth consecutive month. In May, the consumer price index stood at 7.04%, although it moderated from the 95-month high of 7.79% seen in April this year.

Bank deposits and lending rates also increased.

These three banks offer seniors interest rates that beat inflation.

RBL Bank:

On the FDs below 2 crore, RBL Bank offers an interest rate of 7.15% to seniors on a 15 month term. RBL Bank also offers an interest rate of 7% to people aged between 24 months and less than 36 months.

For seniors, the bank offers an interest rate of 6.80% for terms ranging from 36 months to less than 60 months; 60 months to 60 months 1 day; and fixed tax savings deposit (60 months).

During this time, the bank grants a rate of 6.75% over a period of 12 months to less than 15 months; and from 15 months 1 day to less than 24 months. In addition, the rate is 6.25% on terms of 60 months 2 days to 240 months.

The rate is 3.75% to 5.75% on tenures of 7 days to 364 days.

AU Small Financial Bank:

Since June 24, AU Small Finance Bank has granted a rate of 7.10% to seniors on terms of 12 months 1 day to 15 months.

It also offers an interest rate of 7.40% each on terms – 24 months 1 day to 36 months; 36 months 1 day to 45 months; and 60 months to 120 months.

Meanwhile, the bank offers a rate of 6.95% on terms like 15 months 1 day to 18 months; 18 months 1 day to 24 months; and 45 months 1 day to less than 60 months.

While the interest rate ranges from 4.25% to 5.85% on terms starting from 7 days to 12 months.

The interest rate is applicable on the DFs below 2 crores.

IndusInd Bank:

However, IndusInd Bank does not offer above the inflation rate of 7.04%. However, it gives the maximum rate of 7% which is close to the rate of inflation, to seniors on deposits below 2 crore on terms of 2 years to less than 61 months.

The private bank also grants a rate of 7% on the Indus Tax Saver scheme for 5 years to seniors.

In addition, the bank offers 6.75% on terms of 1 year 6 months to less than 2 years; while the rate is 6.50% each over 1 year to less than 1 year 6 months; and 61 months and over.

For seniors, the bank offers an interest rate of 3.75% to 6% on mandates ranging from 7 days to 364 days.

IndusInd’s interest rate is always higher than its peers like HDFC Bank, ICICI Bank, Axis Bank and Kotak Bank.

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