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Banks (Finance)

Interest Rates on Fixed Deposits May Soon Start Falling

Strategic Insights

— 2 min read

Fixed deposit interest rates have increased significantly in the last year due to the Reserve Bank of India's (RBI) 250 basis points (bps) repo rate hike. However, with two back-to-back pauses in repo rate hikes, banks have started reducing interest rates on fixed deposits. Experts believe that interest rates on fixed deposits may soon start falling as the Monetary Policy Committee (MPC) of the RBI is expected to pause rates again in August. The weighted average domestic term deposit rate (WADTDR) on outstanding deposits increased by 10 bps in July, but some banks have already started reducing rates, indicating that the peak interest rate may have been reached. Investors should be prepared for lower earnings on their fixed-income investments as rates trend lower in the second half of FY2023-24.

Key Takeaways:

  • Interest rates on fixed deposits have increased significantly in the last year due to RBI's 250 bps repo rate hike.
  • With two back-to-back pauses in repo rate hikes, banks have started reducing interest rates on fixed deposits.
  • Experts believe that interest rates on fixed deposits may soon start falling as the MPC of RBI is expected to pause rates again in August.
  • The weighted average WADTDR on outstanding deposits increased by 10 bps in July.
  • Some banks have already started reducing rates, indicating that the peak interest rate may have been reached.
  • Investors should be prepared for lower earnings on their fixed-income investments as rates trend lower in the second half of FY2023-24.
  • Leading banks with healthy Current Account Saving Account (CASA) deposits have reduced FD interest rates by 5-30 basis points (bps) and are not expected to reverse it anytime soon.
  • Banks are expected to maintain or lower the interest rates offered on saving instruments like FDs, with those having excess liquidity more inclined to reduce FD interest rates further.
  • RBI is expected to maintain a hawkish stance to curb high inflation rates, which may lead to lower FD interest rates.

Statistics:

  • 250 basis points (bps) repo rate hike by RBI in the last 10 months.
  • Weighted average domestic term deposit rate (WADTDR) on outstanding deposits increased by 10 bps in July.
  • 5-30 basis points (bps) reduction in FD interest rates by leading banks with healthy CASA deposits.
  • Expectation of interest rates trending lower in H2FY2023-24.

Sources:

  • BankBazaar.com
  • Ladderup Wealth Management Pvt. Ltd.
  • Attainix Consulting
  • Wint Wealth
  • SahajMoney
  • Reserve Bank of India (RBI)
  • Bank of Baroda
  • FinEdge
  • Paisabazaar
  • Times of India

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