To control inflation, the Reserve Bank has increased the repo rate by 0.25% to 5.50%. Due to this, on one hand loans will become expensive, on the other hand banks will soon increase the interest rates of their fixed deposits. However, those who have already made fixed deposits will not get the immediate benefit and will continue to get interest at the old rate. Let us understand what effect this decision of the Reserve Bank will have on new and old FD customers and how they can avail maximum profits from it. Old FD will not be affected immediately. If you have already made an FD, then due to increase in RBI’s repo rate, its interest rate will change immediately. When you book an FD with the bank, the interest rate decided at that time remains locked for the entire tenure. Therefore, interest on the old FD will continue to be the same at the rate at which it was started. The benefit of increase in repo rate will be available only on booking a new FD or renewing the old FD after maturity. When will banks increase FD interest rates? Bankbazaar CEO Adil Shetty says that RBI’s decision to increase the repo rate to 5.50% is a relief for savers, but its benefits will be available gradually. Whenever banks increase interest rates, only those who make new FD will be the first to get the benefit. In such a situation, investors should keep an eye on the maturity date of their FD, so that they can renew it at increased rates. Why did RBI increase interest rates? Radhika Rao, Senior Economist and Executive Director of DBS Bank, says that the Reserve Bank has taken this step in view of the increasing risk of inflation in the country. There was a danger of food items becoming expensive due to increase in crude oil prices, global tension and bad weather. For this reason, RBI has increased the interest rate to control inflation and keep the economy balanced. What should those making new FD do? If your FD is going to mature soon, do not auto-renew it. Investors should compare the new interest rates prevailing in the market before renewing. Apart from this, invest money only after keeping in mind the interest rates of other banks and financial institutions, pre-mature withdrawal rules and security. Increase your earnings with FD laddering. According to experts, use FD laddering to avoid the risk of re-investment. This means that instead of depositing all the money in a single FD, divide it into several small FDs with different maturity periods. For example- invest the money in FD of 1 year, 2 years and 3 years. Due to this, some of your money will mature from time to time, which you will be able to reinvest at the then new and higher interest rates.
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FDs will get more interest amid inflation: Due to increase in repo rate, banks will also increase interest rates; Know how to reinvest FD
