Why SBI hiked FD rates?

SBI has increased the interest rates on term deposits for both general public, i.e., those under 60, and also for senior citizens. The lender has hiked rates by 0.25 to 0.75 percent  for FDs of up to Rs 2 crore.

So, Let’s take a look at SBI’s latest FD rates:

The lender has increased the rate on FDs of 46 to 179 days from 4.75 percent to 5.50 percent by 75 basis points. Meanwhile, the interest rate on FDs of 180 to 210 days has been increased from 5.75 percent to 6 percent, and on FDs of less than a year from 211 days to 6.25 percent.

SBI has made changes in the rates of FDs with shorter tenures.  Speaking of regular FDs, for more than 2 years and less than 3 years, the highest interest rate is 7 percent. Senior citizens are getting 7.5 percent interest on this FD.

This is the second time in 6 months that SBI has changed the interest rates on term deposits. Before this, changes were made in December 2023. Now let’s find out the reasons behind SBI’s decision to hike fixed deposit rates:

The first reason is the tough competition banks face especially from smaller ones.

Small banks offer higher interest rates on deposits to increase customer base. It also helps such lenders to compete with bigger banks. For example, AU Small Finance Bank currently offers 8 percent interest on an 18-month FD. While, you can get 7.75 percent on FDs ranging from 12 months 1 day to 15 months. You can also get 7.75 percent annual interest on FDs ranging from 18 months 1 day to 24 months with the small lender.

Similarly, IDFC First Bank currently offers interest rates ranging from 3 percent to 7.90 percent on FDs of 7 days to 10 years. While, the highest annual interest rate of 7.90 percent is available on a 500-day FD with the lender.

Speaking of bigger banks, Bank of Baroda and HDFC Bank currently offer 7.25 percent on FDs of various tenures, while ICICI Bank gives interest rates of up to 7.20 percent. Banks offer senior citizens up to an extra 0.50 percent interest.

Another major reason why SBI hiked FD rates is the increasing demand for loans. Demand for loans has increased amidst rapid economic growth. Banks need funds to meet robust demand for loans. By increasing the interest rates on deposits, banks collect money from the common man. This money is then lent out as loans to earn profits.

SBI is the largest government bank in the country. It has the largest distribution network. In this regard, it is expected that after SBI’s decision to hike FD  rates, other public banks may review their rates also. If other government and private banks follow SBI, it will benefit new customers.

In the current scenario, most banks are giving the highest interest rates on short to medium-term deposits, meaning from less than 1 year to 1 year to 3 years FDs. If you’re also considering investing in FDs for higher returns, then this is the right time.