Why are attractive FD interest rates vital in high inflation scenario

Why are attractive FD interest rates vital in high inflation scenario

Depositors who turn to assets such as gold can affect financial savings and further influence investments.

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

Furthermore, Das said that this will anchor inflation expectations and include other round effects of supply shocks. Eventually, core inflation and total inflation can slow down.

But 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 return for depositors would be so much more negative and if that happens, depositors can turn to other assets such as gold.

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

Any change in RBI’s policy rate will affect the bank’s lending and deposit rates. However, the quantity and time of transferring the changes in policy repo depends on the bank.

In an interest rate increase scenario, it is seen that interest rates on term loans such as houses, cars and private individuals will be higher. However, this is the opposite of deposits because they seem to be attractive – giving real returns to depositors on their investments in traditional systems, especially in fixed deposits that are less risky than market instruments and that also offer guaranteed returns.

During the last two monetary policies, the RBI has raised the repo rate by 90 basis points. In May, the RBI raised the interest rate by 40 basis points and raised it further to 50 basis points in the policy from June 2022. Now the policy rate is 4.9 percent.

RBI forecasts inflation of 6.7% for the financial year FY23. RBI’s medium-term inflation target is 4% with a band of +/- 2% while supporting growth.

Inflation continues to be above the RBI’s comfort zone for the fifth month in a row. In May, the consumer price index was 7.04%, although it slowed from a 95-month high of 7.79% in April this year.

Bank deposits and lending rates have also risen.

These three banks offer inflation-beating interest rates to pensioners.

RBL Bank:

On FD below ₹2 crore, RBL Bank offers an interest rate of 7.15% to pensioners for 15 months. RBL Bank also offers an interest rate of 7% to pensioners for 24 months to less than 36 months.

For retirees, the bank offers an interest rate of 6.80% on employment ranging from 36 months to less than 60 months; 60 months to 60 months 1 day; and Tax savings Fixed deposit (60 months).

At the same time, the bank gives an interest rate of 6.75% on the term of 12 months to less than 15 months; and from 15 months 1 day to less than 24 months. Furthermore, the interest rate is 6.25% on employment from 60 months 2 days to 240 months.

The rate is 3.75% to 5.75% for employment from 7 days to 364 days.

AU Small Finance Bank:

With effect from 24 June, AU Small Finance Bank provides an interest rate of 7.10% to pensioners with a period of employment of 12 months 1 day to 15 months.

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

At the same time, the bank offers an interest rate of 6.95% on employment as 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 jobs starting 7 days to 12 months.

The interest rate is applicable to the FD below ₹2 million.

IndusInd Bank:

Although IndusInd Bank does not offer above inflation at 7.04%. But it gives the maximum interest rate of 7%, which is close to the inflation rate, to pensioners on deposits less than ₹2 crore on employment from 2 years to under 61 months.

The private bank also gives an interest rate of 7% on the Indus Tax Saver system for 5 years to pensioners.

Furthermore, the bank offers 6.75% on employment for 1 year 6 months to less than 2 years; while the rate is 6.50% each for 1 year to under 1 year 6 months; and 61 months and up.

For pensioners, the bank offers an interest rate of 3.75% to 6% on employment from 7 days to 364 days.

IndusInd’s interest rates are still higher than equals such as HDFC Bank, ICICI Bank, Axis Bank and Kotak Bank.

Source By: tamilbloggers