Banks Revise FD Rates: How Much Can A Deposit Of Rs 5 Lakh Earn In Five Years?

Most banks have revised their fixed deposit interest rates, lowering them further after the Reserve Bank of India (RBI) cut the repo rate to 5.5% in its June monetary policy review. The RBI’s Monetary Policy Committee (MPC) reduced the repo rate by 50 basis points on June 6.

The MPC had also announced repo rate cuts in April. Repo rate governs the RBI’s lending rate for commercial banks. A lower rate becomes favourable for borrowers but negatively impacts returns on FDs and savings accounts.

Hence, after the recent key lending rate revision by the RBI, banks have further lowered interest rates on FDs. For instance, the country’s largest lender, State Bank of India, has reduced its FD rates to 6.25% from the earlier 6.5% for the one-to-two-year tenure. Similarly, HDFC Bank, Bank of Maharashtra, Axis Bank, and others have reduced their FD rates to 6.25% for deposits up to Rs 3 crore with a one-year tenure.

For a five year period, SBI is offering an interest rate of 6.05% per annum, while HDFC is offering 6.4% returns. Other banks are also offering returns in a similar range. Hence, investors looking to put their money in FDs should analyse whether the current returns align with their financial targets.

For instance, if an investor plans to park Rs 5 lakh in an FD for five years, let’s see how the fund would grow.

Amount: Rs 5,00,000

Interest rate (HDFC Bank): 6.4%

Time: Five years

Interest earned: Rs 1,86,823

Final corpus: Rs 6,86,823

While FD returns do not seem very attractive, they are an important aspect of a financially diversified portfolio. Investors opt for FDs due to their secure nature. The FD returns are not impacted by factors such as market volatility. The risk-averse investors may find FDs more suitable for their portfolios.