Fixed Deposit: Why Banks Are Raising FD Rates And Should You Lock In Now?

HDFC Bank hiked interest rates on fixed deposits with effect from June 10, 2024. Read on to know why banks continue raising FD rates despite the repo rate remaining the same.
Banks Are Raising FD Rates
Banks Are Raising FD Rates

After the State Bank of India (SBI), HDFC Bank on June 10, 2024, revised interest rates on fixed deposits below Rs 3 crore with new rates effective on the same date. Several other banks like Union Bank of India and RBL Bank have also revised rates in the last two weeks. The HDFC bank now offers general citizens interest rates between 3 per cent and 7.25 per cent on tenures ranging from 7 days to 10 years, with the highest interest rate on tenures of 18 months to less than 21 months.

Why Have Banks Hiked Interest Rates?

Experts suggest that the interest rates offered by banks have been at a record high since the end of March 2024. Says Adhil Shetty, CEO,, "The weighted average term deposit rate for Scheduled Commercial Banks has been volatile. It stood at 6.48 in March 2023, then eased to 6.31 in October 2023, and then went up to 6.62 in March 2024 again." The Weighted Average Domestic Term Deposit Rate (WADTDR) indicates the average interest rate paid by a scheduled bank to its customers on term deposits.

"Banks typically raise rates to address tighter liquidity conditions and increased competition for deposits. This helps them attract more depositors in a competitive environment with a huge liquidity demand. How much further the rates increase would depend on how much longer these liquidity pressures persist," Shetty said.

"Between April 2022 and April 24, the repo went up 250 bps while the WATDR on fresh deposits went up 245 bps. For fresh loans, the hike has been over 200 bps. So we may be close to the policy hikes being transmitted completely," Adhil Shetty added.

As interest rates are at the top of the rate cycle for banks, those considering fixed-income investment can look at locking into the current high fixed deposit interest rates.

Other Banks That Hiked FD Rates

The private sector lender RBL bank hiked interest rates on multiple tenures. General citizens get the highest rate of 8 per cent on tenures ranging from 18 months to 24 months with 50 bps and 75 bps premiums to senior citizens and super senior citizens respectively. The rate hike comes into effect from June 8, 2024.

Public sector lender Union Bank of India is now offering the highest rate of 7.25 per cent to general customers on a tenure of 399 days. The new rates are effective from June 1, 2024. The bank’s other attractive FD tenures include 6.75 per cent on tenure between 365 to 398 days, and 6.50 per cent on tenure between 400 days to 997 days. Senior and super senior citizens get 50 bps and 75 bps premium respectively.

State Bank of India has hiked fixed deposit interest rates with effect from May 15, 2024. The hike ranges from 25 bps to 75 bps depending on the tenure of deposits. The highest rate of 7 per cent is now offered for tenure of 2 years to less than 3 years. The bank announced a 75 basis point hike from 4.75 per cent to 6.25 per cent for deposits maturing between 46 days and 179 days and a 25 basis point increase from 6 per cent to 6.25 per cent for deposits maturing between 210 days to less than one year.

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