Understanding the relationship between investment and interest rate is very important in the stock market. Interest rate helps in determining the price and future value of an asset. In this article, we will discuss the difference between the two concepts and how they influence each other.
When interest rates are low, spending is more affordable. This is because a lower interest rate means that consumers will be able to save more money and invest in the market.
The higher the level of consumer spending, the more jobs are created and production increases. The more production increases, the more jobs are created and the economy can grow. This process keeps on repeating itself in a virtuous circle until some point when the demand for goods and services outstrips supply resulting in a recession or depression.
Relationship between Investment and Interest Rate
A fixed deposit, which is also known as FD, is a safe and popular investment instrument. In this investment method, you can put your funds for a fixed tenure. An FD not just offers you the benefit of a low-risk investment option and a high rate of interest too. If you compare the rate of interest you get when you put your money in FD and the one you get through your savings account, there is a huge difference. The fixed deposit offers a much higher rate of return compared to the savings bank account interest rate.
Due to the dual benefits of low risk and a high rate of interest, people prefer choosing fixed deposits out of the available investment options in the market. Investors who have a low-risk appetite usually go for this option for both medium-term and long-term investments.
Factors that determine investment apart from interest rates
- The amount of money that the investor can afford to invest.
- The length of time the investor is willing to hold their investment, i.e., they want profits in the long term.
- The type of investment, e.g., bonds or stocks.
- The riskiness of the investment, i.e., how much volatility there is in the market and how much it could potentially lose or gain.
Fixed Deposit Term and Interest
Investing in FD is quite easy and a seamless process. The application process is hassle-free and you can make a deposit digitally via net banking or UPI.
If you want to invest in a Fixed Deposit, then the minimum tenure for the same is one year. If you want to invest in the FD for a longer period, then you can go for the FD tenure of five years or more. The lesser tenure offers a lower interest rate compared to the longer-term investment. 1 lakh FD interest for 1 year will be lower than the interest earned in 5 years.
The rate of interest varies with the bank or NBFC. Most banks usually provide an interest rate of 2% to 5.8%. For example, SBI offers an interest rate of 2.9% to 5.5% in the case of general clients while a rate of interest of 3.4% to 6.3% for the senior citizen. While NBFCs such as Bajaj Finance offer a whopping rate of interest of 5.5% to 6.8% in the case of general clients while 5.75% to 7.05% in the case of senior citizens. At this attractive interest rate of more than 7% per annum, you can earn a lot of money.
Your 1 lakh FD interest will depend on the interest rate offered by the financial institution. So, the interest rate or the extra return you get every month depends on the rate of the fixed deposit account.
There are cumulative and non-cumulative fixed deposits. In the cumulative fixed deposits, the interest amount is calculated annually through the compound method and you get a lump sum amount at the time of maturity. While in the non-cumulative fixed deposits, the interest amount is paid monthly or quarterly or half-yearly, or in annual installments, as per the customer’s choice.
1 lakh Interest Rate and Amount
Different institutions offer different FD interest rates for Rs.1 Lakh. The interest rate starts from 2.50% and goes up to 6.00%. The monthly interest earned on 1 lakh FD in banks in India is given in the chart below.
|Banks||Interest Rates||Interest Per Month|
|Punjab National Bank||2.90% to 5.25%||Rs. 242 – Rs. 442|
|SBI||2.90% to 5.50%||Rs. 242 – Rs. 458|
|HDFC Bank||2.50% to 5.60%||Rs. 208 – Rs. 467|
|IDFC Bank||2.50% to 6.00%||Rs. 208 – Rs. 500|
|Bank of India||2.85% to 5.05%||Rs. 242 – Rs.425|
NBFCs also provide fixed deposit accounts:
|NBFC||Interest Rates||Interest Per Month|
|Bajaj Finance Ltd||5.70% – 7.20%||Rs. 475 – Rs. 593|
|Sundaram Finance||5.50% – 5.80%||Rs. 458 – Rs. 484|
|LIC Housing Finance||5.15% – 6.00%||Rs. 433 – Rs. 500|
*Interest rates mentioned in the above table can vary from one lending partner to the other and are subject to change
As you can see, the monthly interest for a 1 lakh fixed deposit is the best in Bajaj Finance. Do read the terms and conditions of the FD before taking your call.
A fixed deposit is an ideal mode of investment for all including senior citizens. Not only do you get a lucrative rate of interest but you don’t have to be concerned about any associated risk. If you are more than the age of 60, then you can avail of the Bajaj Finance Fixed Deposit with an additional 0.25% of interest other than the regular interest rates. So investment in a fixed deposit is one of the best ways to get a return on your capital. It helps you stay away from the market risk and will enable you to generate some stable returns, without incurring any specific risk.