Good news for those looking at fixed deposits as an option, the nation’s premier bank State Bank of India has increased the basis points for fixed deposits from 15 to 75 points based on the tenure of FD, the rates have been revised for senior citizens as well.

Someone who had invested less than a crore for a period up to a year would now earn interest up to 6.40% from the earlier interest rate of 6.25%

With the changes reflecting in the nation’s largest bank, other banks too are expected to follow suit.

What happens to the lending rate now?

While it is good news for those looking for fixed deposits to be a short-term investment option, others might not be so lucky, it is widely expected that the lending rates too would go up, especially those with home loans would be required to pay more in the form of EMIs. The increase in the lending rate is to tighten the liquidity in the market.

Why will the interest rate of loans increase if a bank increases FD rates?

Though banks are not paying higher interest rate when they increase the fixed deposit rates will have to pay higher interest to the customer. This means they are working at a higher operational cost. The best place for them to recuperate their losses is by increasing the rate of interest for their loans. Thus, anyone taking loans based on Marginal Cost of funds-based Lending Rates (MCLR) will get costlier in the next interest rate revision.

Impact of the higher loan interest rates on the borrower

·         For the borrower higher interest rate means higher EMI which will be a financial strain

·         People with bad credit score will find it difficult to get loans as banks will be worried in disbursing loans to defaulters especially at such high rates

Your Credit Health Helps

It is in these times, that your good credit health would come to your help, your credit health is a representation of your good credit behavior in the past and a credit score above 750 would give you a lot of elbow space during interest rate negotiations for loans.

Have you checked your credit score yet? A three-digit scores goes a long way in your journey to good credit.