Why Fixed Deposit Rates Varies – Real Reasons

There are many parameters which leads to the fluctuations in the interest rates of bank, as specially interest given on A Fixed Deposit.

LIQUIDITY

Its one of the primary parameters for variations in FD Interest rate. Liquidity is such a product which can be exchanged very quickly in market in exchange or purchase of any other product or asset. One of primary examples for liquidity is cash. Some times if there is a drastic changes in the demand-supply chain then also the interest rates can fluctuate an FD.

CREDIT OFFTAKE

Many industries such as Agriculture ( Agro industry), Manufacturing etc, generally takes credit from banks and in turn banks expect from them return of principle amount along with an accompanied  higher interest ( Interest rate higher than what is given in an FD). If there is a dip in the credit taken by the major industries or its relative industries, also called as Credit Off-take, can eventually effects the banks’ income in the form the reduced income from interest. In this situation bank or regulatory authority takes steps to reduce the outgoing FD interest ( rates will come down).

INFLATION

In a layman terms, if inflation increases, cost price of majority of products increases. So there arises a need for more liquid money ( credit off take can also increase in some situations). When these two factors ( Inflation + credit-offtake) increases a combined effect comes into persistence, banks needs more money in the form of deposits ( FDs) to full fill the demand for money lending outflow. There is a high chance of increase of FD interest rates if this is the market condition. If the inflation increases  for a shorter period and again comes down, there is no chance of increase or decrease of Interest rates and it will be constant.

WORLD INTEREST RATES

World interest rates basically depend on above mentioned factors, but if the uncertainty in a country is more there is a more risk to the money invested. A politically and domestically uncertain country, has higher interest rates because of moderately higher risk accompanied in investment ( but it varies from one nation to another)

Here is the list of world interest rates

— Some other factors we will discuss in upcoming business discussions