State Bank of India, India’s largest bank, has again cut fixed deposit rates on retail term deposits by 0.10-0.50% in select tenures. The new rates would be effective from tomorrow i.e. February 10, 2020. Simply put, the move by the country’s biggest bank to slash interest rates will fetch you Rs 1,758 to Rs 17,958 less on Rs 10 lakh FD. Such interest rate reductions impact those who solely depend on bank FD interest income for their livelihood. 

The new rates of FD interest will be made applicable to fresh deposits and renewals of maturing deposits. We are first looking at the FD rates for retail domestic term deposits i.e below Rs 2 crore.

Rate cuts

SBI has kept the rates unchanged on FDs maturing in 7 days to 45 days. But in the 46 to 179 days tenure, which competes with liquid mutual funds, the FD rate has been lowered from 5.50% to 5.0%, or by 50 basis points. In comparison to the SBI FD rate, the 3-month category return of liquid funds is 1.25% or 5% annualised. But, debt funds offer tax edge if held for more than three years. Of course, there is no guarantee on the principal and the return of mutual funds.

In the 180 to 210 days tenure, the FD rate has been lowered from 5.8% to 5.5%, down by 30 basis points. The same rate reduction applies to 211 days to less than a year tenure, with the old rate being 5.8% and new rate from February 10, 2020 being 5.5%.

Thanks to the new rates, there is no extra advantage of keeping money locked with SBI for longer tenures. The interest rate for the tenure of 1 year to less than 2 years tenure was 6.1% and the revised rate is 6%. This is a rate reduction of 10 basis points. The revised interest rate for three other tenures i.e. 2 years to less than 3 years, 3 years to less than 5 years, and 5 years and up to 10 years is also exactly the same (6.0%).

Please note the interest rate payable to SBI staff and SBI pensioners will be 1.00% above the applicable rate. The rate applicable to all Senior Citizens and SBI Pensioners of age 60 years and above will be 0.50% above the rate payable for all tenors to resident Indian senior citizens i.e. SBI resident Indian Senior Citizen Pensioners will get both the benefits of Staff (1%) and resident Indian Senior Citizens (0.50%).

Below we have tried to illustrate how a person, below 60 years of age and non-SBI staff, will be affected due to FD interest rate reduction. We have assumed the person cumulatively has Rs 10 lakh SBI fixed deposit. The impact of the latest cut, effective February 10, 2020, is in the range of Rs 1,758 to Rs 17,958.

The impact on senior citizens will be similar in nature. Senior citizens get 50 basis points more than ordinary citizens, but the cut in rates affects all. For the below calculation, we have taken the upper day limit for a tenure. For instance, the interest has been calculated for 210 days in the 180-210 days tenure. Similarly, for 211 days to less than a year tenure, we have taken 364 days (less than a year) for interest calculation.

The interest rates on “SBI Tax Savings Scheme 2006(SBITSS)” Retail Deposits and NRO deposits will be aligned as per the proposed rates for domestic retail term deposits.

You can check out the latest SBI fixed deposit interest rates here.

Do remember that a bank estimates your interest income for the year from all the FDs you have with the bank. There would be a 10% TDS deduction if your interest income exceeds Rs 40,000.

Importantly, senior citizens receiving interest income from FDs, savings account and recurring deposits can avail income tax exemption of up to Rs 50,000 annually.

Fixed deposit interest that you get is added along with other income that you have such as salary or professional income. The total is taxed at the applicable income tax rate for you.

Additional Read

SBI cuts FD rates for 3rd time in 2 months; fixed deposits to fetch 0.20-0.25% less from September 10

‘As a bank, we have to strike a balance between what we pay to our depositors and what we charge on loans’, SBI chairman Rajnish Kumar

Ends

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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