The deposit rates are falling down. From being excited to see the maturity of my deposit and its next renewal, I have now become scared, as for the last 2 years. It is been a never ending southward journey. What does my bank do? As the economy opens up and the bank is flooded with more and more money, rates are going down. The borrower in me is a happy animal, while the depositor in me is losing his hard earned penny every day. With rates that are post tax less than the annual inflation, I think time has come to rename the Fixed deposits as Flexi deposits. For clearer and better understanding of everyone, I will explain how this stuff works and how it hurts a common man.

For example, if Mr. X has borrowed Rs.100 and the interest rates goes up, the bank revises his interest rate and pegs it up by few basis point. This is done as the MCLR or in simple terms, the cost of borrowing the money from you and me has gone up for the bank or in even simpler terms, if you or I had a FD, we could break it overnight and re-park it at the revised higher interest rates. Now when the interest rates goes down, the same Mr. X who has borrowed Rs.100 from the bank cries foul if the bank does not marginally reduces his interest rate in proportion to the downward fall of interest rate.

But what would the bank do in a situation where the FD rates are fixed, as they are committed as an institution to act as per the guidelines by RBI to pay you a fixed rate. So, that means all the deposit holders who have been pegged at a higher rate essentially will receive the same rate, despite the market rate going down. So what a funny situation are we in! The bank is mandated to increase the interest rate when it goes up but unable to reduce the interest rate when it goes down, because of a simple reason that the deposit rates are fixed. It is unfair and cruel to expect your loan rates to be flexible and floating when your deposits are fixed. So it is time that RBI allowed the banks to rename their fixed deposits as flexi deposits, thereby making a common man is burden on his loans truly flexible. You can not expect differential treatment for the money given by you to the bank versus the money borrowed from the bank. There are no free lunches and it has to be a 2 way street.