Understanding the relationship between investment and interest rate is very important in the stock market. The interest rate helps determine the price and future value of an asset. In this article, we will discuss the difference between the two concepts and how they affect 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 continues to repeat itself in a virtuous circle until the demand for goods and services exceeds the supply, leading to a recession or depression.
Relationship between investment and interest rate
Fixed Deposit, also known as FD, is a safe and popular investment vehicle. In this investment method, you can invest your funds for a fixed tenure. FDs not only offer you the benefits of a low-risk, high-interest investment option. When you compare the rate of interest you get when you invest your money in an FD and the one you get through your savings account, there is a huge difference. A time deposit offers a much higher rate of return compared to the interest rate on a savings bank account.
Due to the twin benefits of low risk and high interest rate, people prefer to choose fixed deposits from the available investment options in the market. Investors with a low risk appetite usually choose this option for both medium and long-term investments.
Factors that determine investment other than interest rates
- The amount of money an investor can afford to invest.
- The length of time for which the investor is willing to hold his investment, i.e., he wants to make a profit in the long term.
- Type of investment, such as bonds or stocks.
- The riskiness of an investment, ie how much volatility there is in the market and how much it can potentially lose or gain.
Term of deposit and interest
Investing in FD is quite a simple and seamless process. The application process is hassle-free and you can deposit digitally through online banking or UPI.
If you want to invest in a time deposit, then the minimum period of stay in it is one year. If you want to invest in FD for longer period then you can go for FD tenure of five years or more. A shorter tenure offers a lower interest rate compared to long-term investments. 1 lakh FD interest in 1 year will be lower than the interest earned in 5 years.
The interest rate varies depending on the bank or NBFC. Most banks usually provide an interest rate between 2% and 5.8%. For example, SBI offers an interest rate of 2.9% to 5.5% in case of regular customers and an interest rate of 3.4% to 6.3% for senior citizens. For now NBFC for example, Bajaj Finance offers a whopping interest rate of 5.5% to 6.8% in case of regular customers and 5.75% to 7.05% in case of senior citizens. With this attractive rate of over 7% per annum, you can make a lot of money.
Yours 1 lakh FD interest will depend on the interest rate offered by the financial institution. Therefore, the interest rate or additional income you get each month depends on the rate of the fixed deposit account.
Time deposits are accumulative and non-accumulative. In accumulative term deposits, the interest amount is calculated annually using a complex method and you get a lump sum at the time of maturity. While non-cumulative term deposits interest is paid in monthly, quarterly, semi-annual or 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 at 2.50% and goes up to 6.00%. The monthly interest earned on 1 lakh FD in banks in India is given in the table below.
|banks||Interest rates||Interest per month|
|Punjab National Bank||2.90% to 5.25%||Rs.242 – Rs.442|
|VOO||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 table above may vary depending on the lending partner and are subject to change
As you can see, the monthly interest on fixed deposit of 1 lakh is the best at Bajaj Finance. Please read the FD terms and conditions before accepting your call.
Term deposit is an ideal way of investment for everyone including senior citizens. Not only do you get a lucrative interest rate, but you don’t have to worry about the risks involved. If you are above 60 years, you can avail Bajaj Finance Term Deposit with an additional 0.25% interest on top of the normal interest rates. Hence, investing in fixed deposit is one of the best ways to get profit from your capital. This will help you stay away from market risks and allow you to earn steady income without being exposed to any particular risk.