About bank interest rates...

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CA Nataraju Dyavanapelly (Querist)
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23 November 2013 In general scenario Long term deposit interest rates should be higher than Short term deposit interest rates. But why the banks are giving low interest rate as increase the term of deposits?

For eg:
7 days to 60 days
8.50%

61 days to 1 year
8.25%

1 year to 2 years
6.80%

211 days to 1 year
7.50%

1 year to less than 2 years
8.75%

2 years to less than 5 years
8.75%

5 years and up to 10 years
8.75%

So my doubt is why the banks are offer this type of rates even for short term and long term?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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24 November 2013 Dear Nataraju,

While your observation is correct. However, the interest rates are not only dependent on time. Often the rates are fixed to cover for asset-liability mis-match in various time buckets.

So if the bank has excess liabilities in longer buckets and deficient liabilities in short buckets, it would prefer to pay higher interest in short term to fund short term advances.

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