There are numerous fixed deposit schemes offered by different banks one can avail for separate tenures. The tenure can be as small as just 7 days and as extensive as 10 years. Numerous banks offer 20 year long fixed deposits too. These are mainly State Bank of Patiala, Ratnakar Bank, IDBI Bank, etc. The Fixed deposits for the shorter period of time get interest rates parallel to what one might earn on a savings account. However, the interests on FDs are compounded on a quarterly basis.
People investing in Fixed deposits enjoy benefits such as overdraft facilities, loans, etc. against the amount paid as fixed deposits. The loans or overdrafts are charged interest rates of 0.5% to 1% in addition to the rates applicable on fixed deposits. If the income earned from the fixed deposits is more than Rs. 10,000 in a financial year, one can also claim tax deductions of 10%.
The primary reason being the complete safety of the amount spent and surety of returns compared to other modes of investments out in the market. These deposits behave like saving instruments and are considered to be a more disciplined method of saving for a long period of time.
These forms of deposits are considerably ideal for senior citizens who have limited sources of income and want to secure their earning rather than putting them to risk. Moreover, the banks tend to get greater interest rates to senior citizens.
Though fixed deposits are considered to be more of an old fashion method of savings, it still attracts investors looking out to safeguarding their returns for tenure at decent interest rates. There are numerous rules and restrictions imposed by the policies of RBI to get an excellent control over credit and movement of funds in the entire country. The changes in repo rates, cash reserve ratio change due to the changes in fixed deposits and loans.
There is a benchmark set of unemployment in the country. When the same crosses, the parameter set, the country tends to show an economic slowdown making a direct influence on the purchasing power of people in the country. Thus, forces RBI to release more funds in the financial market which reduces our cash reserves. This further affects our fixed deposits, loans creating a change in interest rates.
The prices of goods increase and things go opposite of what happens in a recession. The banks are worried about rupee devaluation and reduction of purchasing power over the amount lent out. The banks tend to offer high-interest rates in this case.