Deposit Interest Rates

By: EconomyWatch Content   Date: 4 November 2009

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Deposit Interest Rates are dependant on the duration, nature and the amount of a deposit and are revised from time to time. These interest rates are decided on the basis of the prime lending rate and specific features of the deposit account. Changes in the interest rates on deposits are applicable only on renewals and fresh deposits.

Deposit Interest Rates: Meaning

Deposit interest rates are the rates offered by the various commercial banks and depository financial institutions on the various deposit schemes offered by them. The interest rates on deposits represent the price that the banks and the financial institutions are willing to pay to the account holders for using their funds.

Deposit Interest Rates and the Various Types of Deposits

A number of deposit accounts are offered by the banks and the financial institutions. The deposit interest rates may vary from account to account and even bank to bank depending on the features offered to the depositors.

The most common types of deposit accounts offered are the:

  • Checking or Demand Accounts
  • Saving Accounts
  • Fixed Deposit
  • Time Deposit Accounts
  • Recurring Accounts
  • Money Market Deposit Accounts

The checking or demand accounts offer the depositors the facility of withdrawing any amount at any time subject to set limits. The interest rates on current account deposits are generally quite low. The savings account deposit interest rates are generally a bit higher than the current account deposit interest rates. This is because these accounts encourage savings amongst the people but allow limited transactions and include a condition for maintaining a minimum balance. Recurring deposit interest rates are a bit higher than the saving accounts interest rates since a fixed amount needs to be deposited in such accounts every month.

Fixed deposit interest rates are higher than the rates on checking and savings bank accounts. The funds deposited in these accounts can be withdrawn only after the expiry of the pre-specified period. The money market deposit interest rates are also marginally higher than the current deposit interest rates since they allow withdrawal at short notices. The NRI deposit interest rates also vary from the interest rats offered on domestic deposits.

Deposit interest rates are also dependant on bank specific factors such as size of the bank, the target customers and the local market structure and conditions.


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