The stir in the country's banking sector has intensified after the Reserve Bank of India (RBI) increased the repo rate by 25 basis points (BPS) to 5.50% in the Monetary Policy Committee meeting. After this big step of the Central Bank, major commercial and private banks of the country have started revising the interest rates of Fixed Deposit (FD) to woo their customers. This is a big relief news for investors and ordinary citizens who have been struggling with the cycle of low interest rates for the last four years. This increase in FD rates by banks will benefit the most those people who want to get strong and assured returns on their hard-earned money through safe investments. After this change, discussion on new investment strategies has started among the financial markets and investors.
Change in repo rate and immediate action of banks
The pressure of cost of raising funds on the country's financial institutions has increased after the Reserve Bank increased the repo rate from 5.25% to 5.50%. To deal with this situation and maintain adequate liquidity, banks have started increasing the interest on fixed deposits. Banking sector experts believe that when the central bank increases the policy rates, banks increase their interest rates to attract more and more deposits from the market. This is the reason why many big banks and small finance banks have increased the interest rates on FDs of different tenures by 25 to 50 basis points, paving the way for investors to get better returns than before.
How will fixed deposit investors benefit and who will benefit?
The first question that comes to the mind of FD investors is whether the benefit of this increase will be available on their old and ongoing FDs also? According to financial experts, investors who have already booked FD at a fixed interest rate will continue to get the same old interest till maturity. However, investors who are going to make new fixed deposits or whose old FD is about to mature during this period and are reinvesting it, will get the direct and full benefit of the increased revised rates. Apart from this, banks are continuing to offer additional interest rates to senior citizens as usual, due to which the regular income of elderly investors is also increasing.
What are the indications for loan taking customers?
On one hand, there is a wave of happiness on the faces of FD investors, on the other hand, the concern of those loan takers whose loans are linked to external benchmark or repo rate has increased. Due to increase in repo rate, banks can also partially increase the interest rates of home loan, car loan and personal loan, due to which the monthly installment (EMI) of the customers will either increase or the loan tenure will become longer. However, financial experts suggest that considering the current economic conditions and global inflationary environment, fixed deposits have emerged as a great option for investors as a safe investment, in which fixed profits can be earned without any market risk.