Fixed deposits are trustworthy investments

Fixed deposits are trustworthy investmentsFixed deposits (FDs) have always been considered as rewarding investment options. This is not just because they are safe and secure but also because they provide good returns.

In short, FDs are a ‘must have’ in everyone’s investment portfolio.


FDs with floating Interest rates linked to base rate

Traditionally, fixed deposits, as the name suggests, earned interest at fixed rates. For example, if you took an FD with a bank for an amount of Rs one lakh earning an interest of 10 per cent per annum for a period of 6 months, your interest income would be Rs 5,063.

FDs are now being reinvented. The interest rates will now be linked to the base rate. What does this mean? It essentially means that your FD will not earn a fixed return – ironical isn’t it? This is because RBI requires banks to revise and update their base rate every quarter. The base rate will be revised in accordance with current economic situations, cost of funding for the banks etc. So, the interest rate on your FD is likely to vary every quarter, depending upon the market conditions. For example, SBI will offer a 5-year FD at interest rates equal to the base rate and 2- and 3-year term FDs at rates equal to the base rate less 0.25-0.5 per cent. Thus, if the base rate varies during the term of FDs, the interest rate on FDs will change accordingly.

The popularity of FDs may have reduced, in the past, because of low rate of interest but interest rates on FDs are on a rise and more and more investors are again considering investments in FDs.

One Response to “Fixed deposits are trustworthy investments”

  1. callum.laurantus says:

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