In the modern times, focusing on wealth creation is necessary and advantageous. Wealth creation means building wealth by investing in different financial instruments. It helps you achieve financial goals, serves as an additional income source, and builds a corpus to secure your future. Hence, you should actively invest.
Today, there are innumerable financial instruments you can invest in. Fixed Deposit or FD is a fine instrument you should consider. You can make a Lumpsum Investment at a fixed interest rate and tenure. You keep earning decent interest earnings throughout the tenure. You either receive your interest earnings regularly, club them with your principal amount, and earn higher interest rates.
FD interest rates are subject to change and differ for every bank. Following reasons explain why they fluctuate:
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Linked to Repo Rate
Almost all interest rates for investments or borrowing are linked to the Reserve Bank of India’s Repo Rate. It is the rates at which RBI lends money to various banks in India. RBI changes the Repo Rate often to regulate inflation in the country. If the country’s inflation rate is high, the RBI hikes the Repo Rate to curb it. This, in turn, influences FD interest rates. Here, banks typically increase their Fixed Deposit interest rates.
Based on liquidity
Banks also should be mindful of their liquidity. The bank’s liquidity status is closely linked to the RBI’s Repo Rate. As the RBI hikes, the Repo Rate may not be affordable for borrowing. In this case, they entirely rely on investors’ investments to meet their liquidity requirements. Banks increase their interest rates if the Repo Rate is high and there is low liquidity. This enables them to attract more investors.
Credit demand and supply
Almost everyone turns to banks to avail credit. It is the simplest way to meet any financial requirement. Recently, several Loans have been availed more than ever. This means credit has become an important part of the bank’s cycle. If the demand and supply for credit is high, banks will likely consider increasing FD rates.
This assists them in meeting the high demand and supply for credit. However, banks offer a nominal interest rate on deposits if the demand and supply for credit are low.
Right time to invest in FDs
Since FD interest rates fluctuate, the right time to invest is when the interest rates are the highest. This lets you reap benefit from your investment. Download the Banking App to learn about their interest rates and then invest.
You should also check the news and the latest trends. If the news indicates an on-set of inflation and a hike in the Repo Rate, invest before the bank cuts down its interest rate offerings.
