How will FD Interest Rates Change & What to Expect in Upcoming Years?
With the financial year 2019-20 coming to an end, the Indian financial market has witnessed five subsequent cuts in the repo rate. The total difference is estimated to be 135 basis points from February 2019 to October 2019. Currently the repo rate is standing at 5.15% (a decrease by 25 basis points from the last revision). This slash in the repo rate has brought down the fixed deposit interest rates significantly.
With such a decrease in the interest rate it is unlikely for investors to benefit from FD accounts. Such changes have caused the returns to become considerably low. However, specific schemes such as POTD, SCSS, PPF, SSY, NSC, etc. seemed unaffected to the changes in repo rates being backed by the Government of India.
Effects of the change in interest rate
The effects that such changes on interest rate are as follows –
- As per the current scenario, the interest rates are to be lowered owing to the repo rate cut. It will also decrease your returns.
- Not only new investors but also existing account holders will have to bear the reduced fixed deposits interest rates.
- With subsequent changes in the last eight months, it is unlikely to predict the upcoming revisions in the repo rate, owing to which financial planning will become difficult.
- Although fixed deposit interest rate is at an all-time low, it is much higher than that of a savings account. The FD rates will continue to be higher, making it easier for investors to choose between fixed deposits and savings account.
- Finally, subsequent cuts have increased the financial uncertainty owing to which the fixed deposit market may experience a drop in the number of investors.
In spite of such significant cuts, several NBFCs offer high interest rates on their fixed deposits compared to other financial institutions, Bajaj Finance being one of them. Opting for FDs from the NBFC helps you avail fixed deposits interest rates of up to 8.35% with an additional 0.35% in case of senior citizens.
You can choose to invest a minimum deposit amount of Rs. 25,000 over a flexible tenor between 12 months and 60 months as per your requirement to accumulate a substantial corpus by the end of investment tenor. Such FDs also offers variable payouts depending on the type of FD account you choose –
- Cumulative – You get to enjoy a compounded interest rate at the end of tenor.
- Non-cumulative – You can choose between three payout options, monthly, quarterly and half-yearly.
Depending on your financial requirement, consider deciding cumulative or non-cumulative which is better for you.
Also, you get access to fixed deposit calculators with which you can estimate your earnings at the end of your tenor. Having an idea on your income, you can manage your finances better.
Besides, in the interim budget of 2019, it was announced that the threshold of TDS on interest would be increased from Rs. 10,000 to Rs. 40,000. Prior to this announcement, account holders had to submit Form 15G or Form 15H (senior citizens) in case their interest income exceeded Rs. 10,000 at a TDS rate of 10%.
Account-holders could submit the below mentioned forms in case their income amount did not exceed the tax exemption limit. With the benefits of Form 15G or 15H for fixed deposits, the hassles of submitting extensive paperwork reduce until the income touches the threshold of Rs. 40,000.
Furthermore, an additional Income Tax Act (Section 80TTB) has been added to benefit senior citizens. Under this act, individuals above the age of 60 years can enjoy a tax deduction amount of up to Rs. 50,000. Any interest earned over and above Rs. 50,000 will be taxable.
To enjoy the above mentioned benefits of fixed deposits, you can apply conveniently on the official website. To apply, fill an application form with personal or financial details and make your deposits via cheque or debit card.
Additionally, you can also opt for premature withdrawal in case of financial emergencies. Nevertheless, in such cases, it is better to search for alternative options to meet your requirements and prevent premature withdrawals as it will inhibit financial growth and also attract penalties and other charges.