Unlocking High Returns: Understanding RBI's Latest Rules On Fixed Deposit Rates

The Reserve Bank of India (RBI) recently issued a rule revising fixed deposits (FD), leading several major banks to adjust interest rates and terms on FD accordingly. This move seeks to redefine bulk fixed deposit categories that affect individual depositors and investors alike. Let us delve deeper into its impactful implications for consumers. 

What Are Bulk Deposits?

The RBI's proposal to modify its definition of bulk fixed deposits could have significant ramifications for banks and customers alike. Under its previous framework, any deposit over Rs 2 crore was considered bulk. But with its revised framework extending this limit up to Rs 3 crore—effectively classifying individual deposits between Rs 2 and 3 crore as retail deposits distinct from wholesale ones—this may affect depositors’ investment decisions. 

How Is The Interest Rate Fixed?

Establishing the interest rate on a fixed deposit lies within the control of banks; accordingly, rates on fixed deposits differ at most institutions depending on factors like term length and investor age. Banks also tend to vary their deposits' interest rates according to asset-liability management (ALM) policies or customer needs.

Revision Of FD Rates By Banks 

As part of their response to the RBI directive, several central banks have modified their fixed deposit interest rates and retail deposit limits accordingly. Here's a closer look at these changes implemented by some central banks:

State Bank of India (SBI)

SBI is not changing the FD rate. However, the bank has revised its amounts for retail deposits from 2 crore to 3 crore, effective May 15, 2024. 

HDFC Bank

HDFC Bank revised its FD interest rate on June 12. They have updated retail deposits from 2.35 crore to 3 crore.

Utkarsh SFB

Utkarsh SFB has also revised its FD interest rates for two-crore to three-crore rupee loans, effective June 7, 2024. 

Bank of Baroda

The Bank of Baroda revised fixed rates for deposit interest effective June 12 from 2 crore to 3 crore. 

PNB

PNB FD rates were revised from 2 to 3 crores. Rates are effective June 10, 2024.

Axis Bank

Axis Bank revised its fixed deposit rates of interest. The changes will benefit deposits of 2 to 3 crores. The rates are effective June 8, 2024. 

Yes Bank

Yes Bank revised fixed deposit interest rates and changed the retail deposit amount from Rs 2 crore to Rs 3 crore, effective June 8, 2024. 

DCB Bank

DCB Bank revised fixed deposit interest rates and also updated the retail deposit amount from 2 crores to 3 crores. The rates are effective July 7, 2024. 

RBL Bank

RBL Bank revised fixed deposit rates and the number of retail deposits from 2 crores to 3 crores. The rates are effective June 8, 2024.

How Does Your Fixed Deposit Work? 

Fixed deposits with a set lock-in duration are a standard option for those looking to save cash soon. The customer earns a greater interest rate than when using a standard savings account. When the account matures, the client is paid the initial deposit plus the interest accrued.

Fixed deposit accounts usually have minimum deposit requirements and minimal terms. Longer-term deposits typically offer higher interest rates. Some banks allow clients to withdraw funds before the term ends without penalties; fixed deposits enable customers to reduce expenses while increasing savings with each investment they accumulate.

Conclusion

By revising bulk deposit classification and encouraging banks to adjust FD rates and terms for depositors, the RBI aims to empower consumers while creating an efficient banking environment with transparent rates and terms that foster transparency and competition for banking consumers. 

Read the complete RBI Lending Deposit Rate Report here.