Extra maturity you can get at 5-25 bps FD rate hike

The Reserve Bank of India (RBI) recently increased the repo rate from 5.25% to 5.50%, which may lead to higher interest rates on fixed deposits (FDs) in the future. While the exact rate hikes by individual banks are still unknown, even a small increase in FD interest rates can significantly impact the maturity amount, especially for large deposits kept for a long time. To illustrate this, let's examine the potential extra maturity earnings for different deposit amounts and interest rate increases within a 5-year FD.

For a Rs 1 lakh deposit, a 5-bps rate increase from 6.50% to 6.55% can result in an additional Rs 340 at maturity. For a Rs 10 lakh deposit, the extra earnings would amount to approximately Rs 3,400. This demonstrates how a minor rate increase can make a substantial difference in the final maturity amount for substantial investments.

As the interest rate increase grows, so does the extra earnings. A 10-bps rate increase, taking the FD rate from 6.50% to 6.60%, can earn an additional Rs 681 on a Rs 1 lakh deposit and Rs 6,808 on a Rs 10 lakh deposit. Similarly, a 15-bps rate increase from 6.50% to 6.65% results in an extra Rs 1,022 for a Rs 1 lakh deposit and Rs 1,020 for a Rs 10 lakh deposit. The impact continues to escalate with every 5-bps rate hike, showcasing the potential for significantly higher maturity amounts as the rates climb.