Your deposits are decreasing on net basis.
Fixed Deposit ie FD is the traditional instrument of investment and most of the people invest in it in a big way. However, due to rising inflation and declining returns, fixed deposits on net basis have now become a loss-making deal. Inflation data for September has been released today. Retail inflation stood at 4.35 per cent in September. Announcing this year’s fifth monetary policy on October 8, the Reserve Bank of India has projected retail inflation for the current financial year at 5.3 per cent.
RBI has estimated retail inflation to be at 5.3 per cent in the current financial year last week. If the country’s largest bank gives returns on 1 year fixed deposit, if you compare it with inflation rate, then you are getting negative return on FD on net basis. The depositors will have a loss of minus 0.30 per cent here on an annual basis. In simple words, your money is decreasing instead of increasing.
Inflation rate 5.3 percent in August
In the month of August, the retail inflation rate was 5.3 percent. State Bank of India is giving interest between 5 percent to 5.50 percent on one year FD. It is offering an interest of 5.10 per cent on fixed deposits of 2-3 years and 5.30 per cent on tenures of 3-5 years. This is less than or equal to the estimated inflation for the current financial year. The interest rate for FDs of 5-10 years is 5.40 percent and for senior citizens it is 6.20 percent.
How much is SBI, HDFC Bank giving returns
On the SBI side, HDFC Bank offers an interest rate of 4.90 per cent for fixed deposits of 1-2 years, while it is 5.15 per cent for 2-3 years. However, small savings schemes run by the government are giving better returns than the fixed deposit rates of banks. The interest rate for fixed deposits of 1-3 years under small savings schemes is 5.5 per cent, which is higher than the inflation target.
For the time being this situation will remain
Vivek Iyer, Partner, Grant Thornton India, said that real rates are going to be negative for some time and it is important that people choose the right investment option based on financial literacy. Jyoti Prakash Gadia, managing director, Resurgent India, said the higher risk options have shown phenomenal growth, which is expected to continue till inflation is contained or bank deposit rates rise.
Also read, Good news for the economy, industrial production in August saw a jump of about 12 percent
Also read, Relief on retail inflation front! Figure came at 4.35% in September
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