There are numerous investment options. Fixed Deposits, or FDs, are also a kind of investment in these strategies. Fixed deposits are regarded as secure investments because there is absolutely no risk to your wealth, even if they offer a much lower rate of interest than other types of investments. Currently, banks offer interest on typical FDs at a rate of about 5% annually. But, the Reserve Bank of India (RBI) has recently provided a crucial clue in relation to bank FDs.
FD
In its monthly bulletin, the Reserve Bank of India warned that fierce rivalry among banks to increase the size of their deposit base would force banks to raise FD rates. After a rate increase by the RBI and a robust credit expansion as the economy recovers from the pandemic, banks are hiking deposit rates. In order to reduce inflation, the Reserve Bank has also raised the short-term lending rate by 225 basis points since May of last year.
Returns to FD
A significant portion of bank deposits have been earned in the form of FDs as FD yields have increased and the difference with savings deposit rates has grown recently. According to the March 2023 RBI bulletin, current and savings deposits rose at moderate rates of 4.6% and 7.3%, respectively, while FDs saw an annualized (year-over-year) rise of 13.2%.
Credit expansion
According to the RBI, overall growth is still solid notwithstanding a recent decrease in loan growth. According to the RBI bulletin, from May 2022 to February 2023. Banks raised their 1-year average marginal cost of funds-based lending rate (MCLR) by 135 basis points.
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