Floating Rate FDs: Yes Bank & other banks are providing a new type of FDs. Should you invest?

The further interest rate increases do not benefit present FD owners is a weakness of a bank FD. However, the newest FD service from Yes Bank aims to fix this problem.

Floating Rate FDs

80% People in India consider Traditional Bank FDs as investment opportunity to save their money. However, it's not an investment opportunity, it's a saving instrument. 

Further, only a fewer people know about Floating rate FDs in India, as its a new concept and Banks do not promote it as well. These types of FDs distinguished from traditional Bank FDs in terms of interest rate.

At present on fewer Banks like Yes Bank, Axis Bank, SBI Bank etc are offering floating rate FDs to their customers.

What are the floating rate FDs, and, and what are their features?

Floating rate FDs are the same as Bank FDs but different in terms of interest rates, which are Base Rate plus rate hikes are in tandem to repo rate hikes by RBI bank. However, there are no higher or lower limits of interest rates in these FDs. 

Under Floating rate FDs, banks offer their customers an additional mark up rate over and above repo rates set by RBI Bank.

The best part of these FDs are they revised automatically interest rates whenever there are changes in repo rates by RBI. Any customer does not need to go to the bank to request a raise in these interest rates.

Related: FAQs on Floating rate FDs

Current Situation of Floating rate FDs in India 

Currently, the Reserve Bank of India (RBI), recently raised the repo rate by 90 basis points to 4.9% in order to manage rising inflation in the country. They directly passed this benefit on Floating FDs on to the customers. However, the Banks haven't increased rates of traditional FDs in the same way, but several banks moved quickly to increase lending rates by 40 to 90 bps.

At present, a customer can avail the following floating rate FDs:

Floating rate FDs in India 

Once we invest in such FDs, mark up will remain fixed during the tenure of the investment. The only that will vary is the repo rate. These rates can either go up or down depending on the economy's health and inflation in the country.

The minimum amount that a resident individual or non-resident individual can invest in this FD is Rs. 10,000. Further, senior citizens get an additional rate of 0.5% and 0.45% on FDs up to Rs. 2 crores and Rs. 2 crores up to Rs. 5 crores respectively.

What additional factors to note down?

Although the concept is new, but only fewer investors understand the concept of variable FD interest rates. Because traditionally they are exposed only to the fixed FD rates.

Further, there are some penalty rates which may attract owing to premature withdrawal of funds from floating FDs. These penalty amounts vary from 3% to 1% on the FD amount depending on the period of investment.

Related: Difference between FDs and Mutual funds


It is advisable to understand the concept properly first before investing in floating rate FDs. However, the major portion of your savings should not be invested in such FDs. An investor can have a mix of floating & fixed rate FDs in his/her portfolio.


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