Fixed Deposit interest Rate: In February this year, for the first time, RBI reduced the repo rate by 25 basis points. For the second time, it reduced the repo rate by 25 bps in April. Today, for the third time, it has reduced the repo rate by 50 bps. This is sure to reduce the interest rates of bank FDs.
RBI announced a reduction of 50 basis points in the repo rate in the monetary policy on June 6. This is more than expected. A reduction of 25 bps in the repo rate was expected. This decision of RBI has given home loan customers a chance to celebrate. Both new and old home loan customers will benefit from the reduction in repo rate. But, this is bad news for those who keep money in fixed deposits of banks. The question is what should such customers do?
Repo rate has decreased by 1 percent this year
After RBI reduces the repo rate, banks will reduce the interest rates of home loans, car loans and personal loans. They will also reduce the interest rates of fixed deposits . In February this year, RBI reduced the repo rate by 25 basis points for the first time. For the second time, it reduced the repo rate by 25 bps in April. Today, it has reduced the repo rate by 50 bps for the third time. A reduction of 50 bps means that now banks will have to change the interest rates of their home loans and car loans soon.
Why do banks reduce interest on FDs?
Banks earn the most by giving loans to customers. The higher the interest rates at which they give home and car loans to customers, the more they earn. But, after RBI’s reduction in repo rate, they will have to reduce the interest rates on home loans, car loans and personal loans even if they don’t want to. For this, banks will also reduce the interest rates on fixed deposits and savings deposits. After the repo rate was reduced twice this year, many banks have already reduced the interest rates on their fixed deposits.
How much can banks reduce FD interest?
Experts say that in the coming days, public and private banks will reduce the interest rate on their fixed deposits. However, it is not yet known whether the banks will reduce the interest rates of FD by 50 bps, more or less. Banks will take this decision according to their need for funds. The bank which needs more funds can reduce the interest rate by less. The bank which needs less funds can reduce the interest rate by more.
What do you want?
If you have already made an FD in the bank, then you do not need to worry till its maturity. The interest rate at which you have made the FD in the bank will continue to be available to you until your FD matures. If your FD is going to mature soon, then you will have to think about it again. The bank may ask you to renew the FD. But, the bank will offer a lower interest rate on it than before. In such a situation, it will be better for you not to renew that FD. You should withdraw the money from your FD. You can check the interest rates of other banks. There are still many banks which are offering good interest rates on FD. You can make a new FD in those banks.
Do you want to open a new FD?
If you want to make a new FD, then you have to hurry up a bit. After the reduction in repo rate, it may take some time for the banks to reduce the interest rate on FD. Before the banks reduce the interest on FD, it would be better to make an FD with the bank which is offering attractive interest rate. Currently, there are many banks which are offering 7.5 to 8 percent interest rate on long term FD. It has to be kept in mind that it would be better for you to make an FD of at least 1.5 to 2 years, because the process of reduction in repo rate is expected to continue in the coming months. This means that whenever the repo rate decreases, the bank will reduce the interest rate on FD.
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