Why do fixed deposit rates vary from one bank to the next?

Fixed Deposit

The rates of interest on FDs vary from one lender to the next. Find out more about the things that make the interest rates on fixed deposits so different.

Fixed deposits are a good choice for investors who don’t want to take risks and want to make sure they get their money back. When you invest in a fixed deposit, you put down a lump sum of money for a certain amount of time and earn interest at a set rate.

This interest rate depends on the term you choose and how often you get paid. But not all banks or NBFCs have the same interest rates.

The interest rates on fixed deposits are set by each bank or financial institution that offers them based on a number of internal and external factors. Some banks may offer interest rates as low as 4 percent per year, while others may offer rates as high as 8 percent per year.

Why Fixed Deposit interest rates are different

Before you put money into a fixed deposit, you should look at your options and pick a lender that has the features and benefits you want.

When you compare FDs, you’ll see that the interest rates on FDs vary from one bank to the next. It helps to understand why these things are different so you can make a better choice.

So, here are the top reasons why banks and other financial institutions have different fixed deposit rates.

What Kind of Banker They Are

If you want to invest in fixed deposits, the interest rate on FDs depends on the type of lender you choose. Large financial institutions that are well-known in the economy usually have no trouble getting people to put their money in them.

So, they might be able to offer lower rates of interest. Even with these rates, depositors tend to trust banks and NBFCs that have been around for a while.

On the other hand, depositors may be less likely to trust smaller banks or NBFCs that are new to the market. So, in order to get more customers, these newer institutions might start out by giving higher FD rates. This can be seen in a number of new private banks and small financial institutions.

Most of the time, the FD interest rates they offer are at the higher end of the market range. They do this to make their retail FDs more appealing to people who want to put money in them.

Read: Seven ways to improve your credit score in 2023

How much money does a financial institution make?

The Reserve Bank of India sets the repo rate. This rate affects the interest rates that banks and NBFCs offer on FDs. If the central bank raises the repo rate, eventually investors will also raise the FD rate. And if the repo rate goes down, banks lower the interest rates on their fixed deposits as well.

Still, not all banks and NBFCs change their FD rates in the same way when they go up or down.

Large financial institutions with higher profit margins tend to raise FD rates by only a small amount, while younger financial institutions that are still building their customer base may raise FD rates by a lot.

When the repo rate goes down, FD interest rates go down, too. When this happens, banks cut their FD rates by different numbers of basis points.

Some banks and financial institutions may lower the interest rate on FDs by 25 basis points, while others may lower the rates by 50 basis points or more.

Liquidity of the financier

Financial companies that don’t have enough cash on hand or don’t have enough cash can benefit from an increase in retail FDs. So, they might offer lower interest rates to get more people to put money in fixed deposits and grow their customer base.

On the other hand, a bank or other financial institution may not need retail FDs as much if they have enough cash on hand. Because of this, they might be able to lower the interest rates on FDs.

Should you always go with a lender whose Fixed Deposit rates are higher?

Since interest rates on FDs for the same amount and the same length of time vary from bank to bank, should you always choose an FD with a higher rate? The best choice might be the FD with the highest interest rate.

But if you want to go with a well-known and trusted lender, you may have to accept FD interest rates that are a little lower.

On the other hand, if you choose a newer bank with higher FD rates, you may be taking on a bit more risk. But, all things considered, it is always a good idea to make a fixed deposit with a lender that is fundamentally and financially strong, so your money will be safe.


Now that you know what causes FD interest rates to vary from one bank to the next, you can keep an eye on these factors and choose the best-fixed deposit for your portfolio. Interest rates on FDs also change from time to time based on things like repo rates and credit demand.

So, you should also think about these things before making a financial decision.

Join our social handles | EKANA TECHNOLOGIES

Leave a Comment

Ekana Technologies PTE Ltd

160 Robinson Road, #14-04 Singapore Business Federation Centre, Singapore (068914)

© 2023 Ekana Technologies PTE Ltd • All rights reserved