How Often Are RD Rates Revised? What Savers Should Track

If you have been a working professional for some time, you know the importance of financial planning. Earning money is crucial, but so is investing it at the right time. In India, RD or Recurring Deposit is a vital and popular financial tool for many people. Why? It offers stable returns, comes with a low risk and assured interests, unlike the stock market. 

However, just like any other financial instrument, RD is also governed by the external market forces. If you have an RD or are looking to open an account soon, keeping one eye on changing policies is key. In this blog, we’ll unravel how often the RD interest rates are revised. We’ll also learn the factors that each saver should track to benefit the most. 

Factors That Influence RD Rate Changes

Understanding the factors that can alter your bank’s RD interest rates will help you create a better financial plan:

• RBI Repo Rate

One of the most influential benchmarks in the Indian financial sector, the Repo rate determines the rate at which the RBI lends money to commercial banks. When the RBI increases this rate, it becomes expensive for the banks to get loans, and thus, they may increase the interest rates for RDs and FDs. Conversely, when the RBI drops the rate, so do banks and NBFCs.  

Pro Tip: RBI conducts the Monetary Policy Committee to discuss fiscal issues such as inflation, market forces and financial planning. Watch out for any updates to stay ahead in the race. 

• Inflation Trends

Higher inflation takes away the purchasing power of common people. To counter this, the RBI may increase the interest rates to slow down the spending and make customers value their money. 

For instance, if you invest ₹50,000 in an RD at 7.5% interest but inflation is 9%, your money grows to ₹53,750, but its real value drops, and its buying power reduces to around ₹49,300.

Pro Tip: Consumer Price Index (CPI) data helps to predict upcoming changes and helps you stay prepared. 

• Banking Liquidity System

In case of excess cash flow, such as during a policy stimulus or low credit demand, the bank may not need new deposits and reduce the RD interest rates. Similarly, when they are short of liquidity and need more funds to lend capital to new borrowers, they may attract deposits with higher RD interest rates. 

• Competition From Government Schemes 

Government-backed savings schemes like the Post Office RD, Senior Citizen Savings Scheme (SCSS), or Public Provident Fund (PPF) often come with fixed quarterly interest rates. If a public scheme offers a significantly better rate, banks may respond by tweaking their RD interest rates to stay competitive and retain depositors. Comparing RD interest rates with similar schemes can help you decide where your money will grow better.

Smart Investment Tips for Savers To Maximise During Economic Changes

Here are some key tips you can use to cut your losses or gain better returns during any of the above policy changes: 

• Diversify Your Investments

Don’t just rely on RDs. You can use Fixed Deposits, mutual funds and other investments to stay afloat during policy changes. This will ensure that you are not hit too hard during extreme changes. 

• Laddering Strategy 

You can open several RDs in different banks with different tenures. This allows you to gain maximum profit through shorter and longer tenures. Plus, you can access quick funds without losing your RD interest. 

• Smart Planning

Always take a good measure of the market situation before opening an RD account. Compare different bank rates, economic policies and upcoming major financial events and plan accordingly. Take help from experts to decide whether you should go now or later. 

Wrapping Up

Recurring Deposits are one of the most popular investment instruments in India. You, your parents and even your grandparents have one or two RDs in some bank. However, planning and a smart strategy will help you stay ahead of the financial game. Take a look at the economic state of the nation, RBI meetings, inflation rates, etc and reap maximum rewards from your RDs.