How repo rate impacts FD rates?

Know all the details about how repo rate can have an impact on the FD rates.
2 mins
23 February 2024

What is repo rate?

The repo rate regulates the interest rate at which the Reserve Bank of India (RBI) lends money to the banks, which eventually lend money to the end user. It is the interest rate at which banks borrow money from the central government body (RBI). The current repo rate in 2023 stands at 6.50% as per the 8th February, 2023 update, when the Reserve Bank of India (RBI) raised the repo rate by 20 basis points. The hike in the repo rate was done to manoeuvre the increasing inflation and discourage banks from borrowing from the RBI. This is essentially done to control inflation and regulate liquidity in the system.

How repo rate works?

The Reserve Bank of India (RBI) regulates inflation in the country by managing the repo rate. Inflation is driven by the supply and demand chain in the economy. Higher inflation means a higher demand compared to the supply, leading to an increase in prices. To curb that demand the RBI then increases the repo rate making it more expensive for banks to borrow from the RBI.

How repo rate Impacts FD rates?

The correlation between fixed deposit interest rates and the repo rate is straightforward. When the repo rate increases, FD interest rates follow suit, and when the repo rate decreases, FD interest rates decline as well. This connection is clear-cut.

If you have surplus funds for investment, the current period presents a favorable opportunity. As the repo rate rises, both banks and Non-Banking Financial Companies (NBFCs) typically enhance the interest rates offered on fixed deposits. Therefore, considering shorter-term fixed deposits now could be a wise move to capitalize on the anticipated rise in interest rates in the upcoming months.

During the pandemic, the aim was to stimulate growth and aid the then-current economic scenario hence a lower repo rate was decided. The low repo rate allowed for an easy flow of liquidity in the economy. However, it forces the investors who prefer such fixed-income instruments to make a smart decision because lower repo rates signify lower interest rates. However, with the steep hike in repo rate, the interest rates on fixed income instruments are likely to rise. Hence, choosing the right fixed-income instrument becomes crucial. Financial avenues like fixed deposits might offer even higher returns.

The emergence of Repo-Linked Fixed Deposits

Banks are now adopting the practice of offering a repo-linked interest rate, allowing investors to take advantage of favorable changes in Repo Rates. Ordinarily, a rise in the Repo Rate might result in reduced real returns. However, with a Repo-linked interest rate, the increase in the repo rate is incorporated into an adjusted higher interest rate.

Latest interest rates

Based on the recent repo rate, the revised Bajaj Finance Fixed Deposit interest rates for customers below 60 years of age 02 Jan, 2024 are:

*Special interest rates are offered on tenure of 15, 18, 22, 30, 33, 42 and 44 months.
 

Customers below the age of 60 – Bajaj Finance Digital FD (Available only on Bajaj Finserv website and app)
Tenure in months At maturity
(p.a.)
Monthly
(p.a.)
Quarterly
(p.a.)
Half yearly
(p.a.)
Annual
( p.a.)
42* 8.60% 8.28% 8.34% 8.42% 8.60%

 

Customers below the age of 60 – Special Period
Tenure in months At maturity
(p.a.)
Monthly
(p.a.)
Quarterly
(p.a.)
Half yearly
(p.a.)
Annual
( p.a.)
15* 7.45% 7.21% 7.25% 7.32% 7.45%
18* 7.40% 7.16% 7.20% 7.27% 7.40%
22* 7.50% 7.25% 7.30% 7.36% 7.50%
30* 7.45% 7.21% 7.25% 7.32% 7.45%
33* 7.75% 7.49% 7.53% 7.61% 7.75%
44* 8.35% 8.05% 8.10% 8.18% 8.35%

 

Customers below the age of 60 – Regular Period
Tenure in months At maturity
(p.a.)
Monthly
(p.a.)
Quarterly
(p.a.)
Half yearly
(p.a.)
Annual
( p.a.)
12 - 14 7.40% 7.16% 7.20% 7.27% 7.40%
>15 - 23 7.50% 7.25% 7.30% 7.36% 7.50%
24 7.55% 7.30% 7.35% 7.41% 7.55%
25 - 35 7.35% 7.11% 7.16% 7.22% 7.35%
36 - 60 8.05% 7.77% 7.82% 7.89% 8.05%


Senior citizens are offered additional returns up to 0.25% p.a. interest rates on all tenures.

Calculate returns on your FD through FD calculator

Frequently asked questions 

Will FD rates increase in 2024?

Predicting FD rate changes in 2024 is uncertain and depends on various economic factors and central bank policies.

Should I withdraw from the current FD if there is an increase in FD rates?

Deciding to withdraw from your current FD when there's an increase in FD rates should be based on your financial goals and the terms of your existing FD.

What is the reverse repo rate?

The reverse repo rate is the rate at which banks park their excess funds with the Reserve Bank of India, often used as a tool to control liquidity in the market.

How does the bank rate differ from the repo rate?

The bank rate is the rate at which the Reserve Bank lends money to commercial banks, while the repo rate is the rate at which banks borrow money from the Reserve Bank for the short term, mainly overnight.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.