Certificates of Deposits interest rates rise to 9.5%
Certificate of Deposits popularly known as CDs will witness a hike in the interest rates to 9.5% as the banks have decided. The decision is heavily influenced by the fact that banks are short of liquidity and this move will help them fight the liquidity issue as well as raise additional funds from corporate.
These CDs are instruments which allow the banks to accumulate funds from investors and corporate for a relatively short term. The maturity can range from 7 days to a year; however financial institutions can raise funds through it for 3 years.
The RBI other than institutions and corporate also allows the common investor to invest in it but only in multiples of 1 lakh, with 1 lakh being the minimum amount.
The SBI and ICICI Bank recently raised the fixed deposit rates by a whopping 150 basis points. Few banks like Indian bank that have already exhausted the 3 percent limit of CDs are not increasing their rates.
The increase of rates to 9.5% will mean that the these deposits will offer 125 basis points interest rate more than the FDs.