How Will Fixed Deposits Get Affected by RBI Rate Cuts?
The Reserve Bank of India (RBI) has taken a consecutive step by reducing the repo rate by 25 basis points (bps) for the second time this year. This move is expected to have a ripple effect on various monetary instruments, including fixed deposits (FDs). As per experts, banks are likely to reduce the interest rates on FDs in response to the RBI’s rate cut. In this blog post, we will delve into the impact of RBI rate cuts on FDs and provide insights on what investors should do to make the most of this scenario.
Why are banks expected to reduce FD interest rates?
The RBI’s decision to reduce the repo rate is aimed at boosting economic growth and promoting borrowing. When the repo rate is reduced, it becomes cheaper for banks to borrow money from the central bank. As a result, banks are likely to pass on this benefit to their customers by reducing the interest rates on FDs. This is because banks earn a significant portion of their revenue from the difference between the interest they pay on deposits and the interest they charge on loans.
Some banks have already started cutting interest rates on FDs
As per a banker who spoke to News18, some banks have already started reducing the interest rates on FDs. This trend is expected to continue as banks look to maintain their profit margins and attract more deposits. With the RBI’s rate cut, banks are under pressure to reduce their interest rates to remain competitive in the market.
What should investors do?
Investors who have investible surpluses can consider booking FDs offering higher yields, especially those with longer tenures. This is because longer-term FDs tend to offer higher interest rates to compensate for the higher risk associated with them. By investing in FDs with longer tenures, investors can earn higher returns and benefit from the compounding effect.
FDs with higher yields
Investors can look for FDs offering higher yields from banks that have not reduced their interest rates significantly. Some banks may still be offering higher interest rates on FDs, especially for longer tenures. Investors should carefully evaluate the interest rates, tenures, and credit ratings of these banks before making an investment decision.
Why FDs are still a good investment option
Despite the expected reduction in FD interest rates, FDs remain a good investment option for many investors. FDs offer a fixed return, which is attractive in a low-interest rate environment. Additionally, FDs are considered a low-risk investment option, making them suitable for investors who are risk-averse.
Conclusion
The RBI’s decision to reduce the repo rate is expected to have a significant impact on FD interest rates. Banks are likely to reduce their interest rates on FDs to maintain their profit margins and attract more deposits. Investors who have investible surpluses can consider booking FDs offering higher yields, especially those with longer tenures. By doing so, they can earn higher returns and benefit from the compounding effect.
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