How FD rates are determined: Key factors explained

Fixed deposits (FDs) continue to be one of the safest and most dependable investment options in India. They offer a guaranteed return over a specified period, making them suitable for individuals seeking stability over risk. While many investors appreciate the predictability of FDs, fewer fully understand how fixed deposit rates are determined. In today’s changing economic environment, these rates are influenced by several domestic and global factors. Understanding what drives them helps investors make better financial decisions — and choose the right provider. In this context, we highlight the FD offering from Bajaj Finance and explain how its latest fd rates stack up. Understanding FD and how interest works A fixed deposit allows an investor to place a specific amount of money with a bank or non-banking financial company (NBFC) for a fixed tenure. In return, the institution pays interest at a predetermined rate until maturity. The interest can be compounded and paid at the end of the tenure (cumulative FD) or disbursed periodically (non-cumulative FD). The return is fixed at the time of investment and remains unaffected by market movements. However, the institution’s rate is determined using economic and institutional considerations rather than being set arbitrarily. With Bajaj Finance, you can choose tenures between 12 and 60 months. The minimum deposit starts from Rs. 15,000, making it an accessible choice for a wide range of investors. Key factors influencing FD interest rates Several key factors shape how banks and NBFCs decide the rates offered on FDs. Here are the main ones — and how they matter when you’re comparing options such as those from Bajaj Finance. 1. Repo rate set by the Reserve Bank of India The repo rate, which is the rate at which the RBI lends money to commercial banks, has a direct influence on FD rates. When the RBI raises the repo rate to control inflation, borrowing becomes costlier for banks. To maintain liquidity, banks and NBFCs tend to increase their deposit rates. Conversely, when the RBI lowers the repo rate to encourage lending, FD rates usually decline. 2. Inflation levels in the economy Inflation affects the real value of returns from a fixed deposit. When inflation rises, the central bank often raises interest rates to reduce the money supply, leading to higher deposit rates. During low-inflation periods, rates tend to fall since there is less need to attract extra savings. Investors aim to achieve returns that keep pace with or exceed inflation, making it important to consider the broader price environment when investing. 3. Demand and supply of credit Financial institutions balance their funding needs with the demand for credit. When businesses and consumers borrow more, credit demand increases, and banks or NBFCs require additional deposits to support lending. This often results in higher fixed deposit rates. When credit demand weakens, the need for deposits decreases, and institutions may adjust rates downwards. 4. Tenure of the fixed deposit The investment duration directly affects the rate of return. Generally, longer-tenure deposits earn higher interest as the investor commits money for an extended period. With Bajaj Finance, for instance, the highest rates apply to tenures between 24 and 60 months. For regular customers, rates go up to 6.95% p.a., and for senior citizens, up to 7.30% p.a. 5. Credit rating of the institution Non-banking financial companies and smaller institutions may offer slightly higher FD rates than large banks to attract investors. The safety of such deposits is assessed through credit ratings issued by agencies like CRISIL or ICRA. Bajaj Finance FDs carry AAA/Stable ratings from both CRISIL and ICRA — one of the highest safety ratings in the industry. High ratings reflect strong financial stability and timely repayment capacity, which is an important consideration for investors balancing return versus credibility. 6. Economic growth outlook The broader economic environment influences interest rate trends. During phases of strong economic growth, the demand for credit increases as industries expand and consumers spend more. This encourages banks to raise deposit rates to attract funds. When economic activity slows, credit demand falls, and institutions may lower rates to maintain profitability. 7. Liquidity conditions in the financial system Liquidity – the amount of funds circulating in the financial system – matters. When liquidity is high, banks and NBFCs have ample resources and little incentive to offer higher rates on deposits. When liquidity tightens due to increased lending or government borrowing, institutions raise FD rates to attract more deposits. 8. Type of customer and deposit amount Interest rates may vary depending on the depositor’s profile and deposit amount. Senior citizens, for example, are often offered slightly higher fixed deposit rates — typically around 0.25% to 0.50% above the standard rate. In Bajaj Finance’s case, senior citizens receive up to 0.35% p.a. additional rate compared to non-senior customers. Some institutions also offer preferential rates on bulk deposits or for long-standing customers. 9. Market competition and regulations Competition among financial institutions influences rate setting. When several banks or NBFCs compete for deposits, they may offer higher rates to attract investors. Additionally, regulatory requirements such as the cash reserve ratio or statutory liquidity ratio can impact how much flexibility institutions have to increase deposit rates. Why consider investing with Bajaj Finance Fixed Deposit Here are key reasons why the Bajaj Finance FD stands out, especially for conservative investors looking for safety and reliable returns: Attractive rates: Bajaj Finance offers rates up to 6.95% p.a. for regular investors, and up to 7.30% p.a. for senior citizens for tenures of 24–60 months. Flexible tenures: Choose between 12 and 60 months to match your savings goal — whether short-term or medium-term. Low entry amount: Start with just Rs. 15,000, making it accessible for all types of investors. Top-class safety ratings: Rated AAA/Stable by both CRISIL and ICRA, indicating a strong safety profile. Flexible payout options: Choose how you want to receive interest — monthly, quarterly, half-yearly, or at maturity. Loan against FD: Get a loan of up to 75% of the FD value (for cumulative) or up to 60% (for non-cumulative) without breaking your investment. End-to-end online process: From booking the FD to managing renewals, everything can be done digitally with ease. How investors can respond to FD rate movements Even though individuals cannot control how rates are set, they can adopt certain strategies to optimise their returns. With Bajaj Finance in mind, here are some tips: Use laddering: Split your investment into multiple FDs with different tenures to maintain liquidity and reinvest at potentially higher rates. Monitor rate announcements: Keep an eye on policy changes and institutional updates to time your deposits better. Compare payout options: Choose between monthly, quarterly, or maturity payouts depending on your income needs. Choose the right tenure: Since Bajaj Finance offers the highest rates for 24–60 months, consider locking in that tenure for maximum benefit. Factor in taxation: Remember that FD interest is taxable as per your income-tax slab, so calculate post-tax returns. Consider senior-citizen benefit: If you are above 60, take advantage of the additional 0.35% p.a. interest rate. Check minimum amounts and features: Start with as little as Rs. 15,000 while still enjoying attractive rates. Understand premature withdrawal terms: Be aware of any penalties or lower rates that may apply if you close your FD before maturity. The road ahead for FD rates — and for Bajaj Finance The structure of fixed deposit interest rates in India will continue to evolve with broader economic and policy developments. As the financial system becomes more integrated with global markets, interest rate movements abroad may also influence domestic deposit rates. Technological advancements have made it easier for investors to compare rates, open deposits, and manage renewals online. With its current offering, Bajaj Finance is well-positioned for this future — combining digital convenience, strong safety ratings, and competitive returns. Despite new investment products entering the market, FDs will likely remain relevant due to their predictable returns and ease of understanding. Bajaj Finance’s FD is a strong option in this space. Fixed deposit rates are influenced by a mix of economic indicators, policy measures, and institutional requirements. Repo rate changes, inflation, liquidity, and market competition all contribute to how institutions decide interest levels. For investors, understanding these factors provides better insight into why rates move and how to plan investments accordingly. If you are looking for a safe, predictable, and accessible fixed-income option, the Bajaj Finance Fixed Deposit offers a compelling choice — with up to 7.30% p.a. for senior citizens and 6.95% p.a. for others — backed by strong safety ratings and flexible features.