FD rates across public and private sector banks: A comparison

Fixed Deposits are among the most trusted forms of investment, providing guaranteed returns at the end of a fixed tenure. One of the most important determining factors regarding Fixed Deposits is the rate of interest at which one receives the returns.

Both public and private sector financial institutions offer competitive fixed deposit rates; however, there are few fundamental differences between the two. In this blog, we will explore the differences between the FD rates offered by public and private banks and what are the factors that influence them.

FD Rates: Public vs private sector banks

1. Public Sector Banks

Public-sector banks are government banks. General FD rates here range from 4% to 6.5%, depending on the tenure for which you are fixing it. Higher inflation time can even bump up the FD rates to 7.5% for certain periods.

Senior Citizen FD rates are a bit higher, with 0.5% to up to 1%, depending on the tenure and market conditions. The higher the time you fix your amount, the better compounding you get.

2. Private sector banks

Private sector banks are known for offering better returns through higher FD rates. Smaller private banks offer interest rates ranging from 4.5% to 7.5%, while larger banks can provide up to 8%. Much like public banks, senior citizens enjoy a 0.5% to 1% additional interest over the standard FD rate.

Many of these banks also offer special schemes for the elderly and limited-time high interest rates to help customers generate more wealth.

Moreover, private sector banks prioritize customer satisfaction and offer options for  interest reinvestment or monthly payout for convenience of the account holder.

Factors influencing FD rates

1. Bank cost of funds: RBI charges private-sector banks a higher cost of funds than public ones. This increases their repo rate, and hence, they have to offer higher FD rates of interest to attract more people to make fixed investments.
2. Risk appetite and competition: Public-sector banks are backed by the government and, hence, are evenly paced. Private-sector banks, on the other hand, follow a more fast-paced competitive model and, hence, offer better FD rates for better reach.
3. Tenure of the FD: FD rates and returns depend highly on the tenure for which you are locking in your funds. For both public and private sector banks, you get higher returns if you fix your amount for 5 years and above, and it gets less as you opt for shorter tenure. Similarly, if you invest your money in a tax-saving Fixed Deposit scheme, then you can even save up to ₹1.5 lakh a year on the principal amount under Section 80C of the Income Tax Act of India.
4. Economic Conditions: Your FD interest rate depends heavily on the ongoing economic condition of the national and international markets. High inflation can cause a steep rise in the repo rate, which in turn increases interest rates. Conversely, low inflation will ease the tension of getting funds for the RBI and hence bring down the FD rates.

Conclusion

Choosing between public and private sector banks for fixed deposits ultimately depends on your priorities. While private sector banks offer high rates of interest, public banks are backed by the government and provide less risk. Whether you choose a public or private bank, FDs remain a reliable way to grow your savings safely.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.