Negative real returns are being given on bank FDs due to inflation. RBI said last week that consumer price index (CPI) based inflation is expected to remain at 5.3 per cent during 2021-22.
New Delhi: The interest being received by senior citizens and other investors dependent on the income from fixed deposits ( FD ) of banks is less than the actual inflation. The Reserve Bank of India (RBI) in its latest monetary policy review has projected retail inflation at 5.3 per cent for the current financial year.
Inflation expected to remain at 5.3%
RBI said last week that consumer price index (CPI) based inflation is expected to remain at 5.3 per cent during 2021-22. At this stage, the country’s largest lender State Bank of India (SBI) will get negative interest on FD for one year and the real interest rate for the saver will be negative 0.3 percent. The real interest rate can be found by subtracting the rate of inflation from the interest rate offered by the bank. Retail inflation stood at 5.3 per cent in August.
HDFC offers 4.9% interest on FD
Similarly, the interest rate available for a tenure of 2-3 years is less than the projected inflation for the current financial year. Leading private sector HDFC Bank offers an interest rate of 4.90 per cent for FDs of 1-2 years, while it is 5.15 per cent for 2-3 years. However, small savings schemes run by the government are giving better returns than the FD rates of banks. The interest rate for fixed deposits of 1-3 years under small savings schemes is 5.5 per cent, which is higher than the inflation target.
Bank deposit rates may increase
Vivek Iyer, Partner, Grant Thornton India, said that the real rates are going to be negative for some time, and it is important that people choose the right investment option based on financial literacy. Jyoti Prakash Gadia, managing director, Resurgent India, said higher-risk options have shown unprecedented growth, which is expected to continue till inflation is contained or bank deposit rates rise.