For Quick Alerts
For Daily Alerts

    Here's Why FD and Small Savings Scheme Will Soon Become Attractive


    On Wednesday, the Reserve Bank of India (RBI) hiked the repo rate for the second time this year in its monetary policy review to curb inflation. The two consecutive rate increase to 6.5 percent in five years will surely make loans expensive, this will, however, benefit savers.

    Why is repo rate increased?

    Why is repo rate increased?

    Repo rate is the rate at which a central bank (RBI in India) lends money to the commercial banks in the country if they have a shortfall. When lending becomes expensive, the banks increase interest rates on fixed deposits (especially long periods) so that it will encourage more people to make deposits and in turn, they will have enough funds to lend, instead of taking it at a high-interest rate from the central bank.

    The reason repo rates are hiked is to encourage deposits. A higher interest rate will make savings in different forms attractive, and loans will become expensive. In this way, the money in circulation will be reduced. With less money, the retail demand for goods will fall and inflation will be controlled.

    Fixed deposits

    Fixed deposits

    The first to initiate the rise in fixed deposit interest rates, even before the RBI repo rate hike was SBI (State Bank of India), that has revised its rates by 5 to 20 basis points on most long-term tenures. HDFC increased its lending rates this week. Soon, others financial institutes will revise their interest rates.

    Small savings schemes

    Small savings schemes

    Small savings schemes include National Savings Scheme, 5-year post office monthly income schemes, Kisan Vikas Patra, Public Provident Fund (PPF), etc.

    The interest rates on these are revised every three months (quarterly cycles) since April 2016, however, it has remained unchanged since January 2018. The next date for revision of interest rates on these government-backed savings schemes is 15 September.

    Also Read: Latest Interest Rates of Various Post Office Savings Schemes (July-Sept 2018)

    Even if the interest rates are not increased in the coming end of the current quarter, these schemes fetch higher interest returns than most fixed deposit or recurring deposit schemes provided by banks, making them a better bet.

    Read more about: fd small savings schemes
    Story first published: Saturday, August 4, 2018, 11:22 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    Notification Settings X
    Time Settings
    Clear Notification X
    Do you want to clear all the notifications from your inbox?
    Settings X
    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more