Fixed Deposits are financial savings instruments offered by banks which provide a higher return than savings rate by locking the savings for a specific duration (specific number of day, months or years). The fixed deposit rate is dependent on the Repo Rate determined by the Reserve Bank of India(RBI) – the rate at which it lends to banks in India.
Typically the fixed deposits is offered at a slight margin basis point higher than the repo rate. Currently with the repo rate at 6.50%, State Bank of India offers fixed deposits at the high tier at 7.00%. The repo rate is expected to go down as government cuts the interest rate to encourage more businesses and individuals to take loans to stimulate growth if the inflation of prices is under control. Overtime as the country become more developed, the interest rates will continue its downward trend providing lower returns on fixed deposits. Hence it is imperative to not keep investing in fixed deposits as the long term growth of your wealth is impacted by the lower returns of fixed deposits. You will have to earn for a longer duration to reach a stage where you have saved enough for your life goals and retirements.