How does ₹2,000 note withdrawal impact your bank FD rates? This is what experts say

Bank FD interest rate: The withdrawal of 2000 notes from circulation by the RBI may increase liquidity of banks, leading to lower deposit rates

Asit Manohar
Updated3 Jun 2023, 01:09 PM IST
Bank fixed deposit interest rate: Experts suggest starting new bank fixed deposits before the upcoming RBI's Monetary Policy Committee meeting in June 2023.
Bank fixed deposit interest rate: Experts suggest starting new bank fixed deposits before the upcoming RBI’s Monetary Policy Committee meeting in June 2023.(REUTERS)

Bank FD interest rate: The Reserve Bank of India (RBI) recently announced to withdraw 2000 notes from circulations. While those who have 2000 in cash are busy depositing it at their bank account before the given deadline of 30th September 2023, some personal finance experts have said that RBI's move may help increase liquidity of various banks. In that case, banks may not offer high deposit rates and hence, if you are planning to start new bank fixed deposit (FD) in near term, then you should try to start that before the upcoming RBI's Monetary Policy Committee (MPC) meeting scheduled from 6-8 June 2023.

Suggesting fresh investors to go for new bank FD before the upcoming RBI's MPC meeting, SEBI registered tax and investment expert, Jitendra Solanki said, "After the withdrawal of 2000 notes, liquidity at Indian banks is expected to shoot up and in that case, expecting high bank deposit rates your bank is little illogical. In fact, the RBI Governor Shaktikanta Das has already hinted after previous RBI MPC meeting by signaling interest rate pause. This was enough to understand that high bank FD rates may not last long and hence, if someone is planning to start new bank FD, then it is high time for them to open a new bank FD account as any further dovish stance by the RBI in upcoming MPC meeting may lead to bank FD interest rate cut as banks will have more money for lending after the withdrawal of 2000 notes."

On how this 2000 notes withdrawal is going to impact bank deposits, Kartik Jhaveri, Director — Wealth at Transcend Consultants said, "Deposits of 2000 notes is expected in tier-2 and tier-3 cities, where state-owned banks are more in operation. So, liquidity is expected to shoot up at PSU banks. However, if we come to bank FD rates after 2000 withdrawal, the RBI has already hinted interest rate pause, so writing is already on the wall and it has further strengthened after the RBI decision to withdraw 2000 notes. So, it's advisable to start a new FD before the RBI's MPC meeting scheduled next week as RBI may announce some concrete road map in regard to interest rate pause or cut."

Kartik Jhaveri went on to add that RBI's MPC is a mere guideline for retail banks. They might decided to cut deposit rates if they reaslise that they have enough money for lending. Similarly, they can raise more than the key interest rate raised by the RBI, if they senses that they need more money for lending.

On May 19, 2023, the RBI decided to withdraw the 2000 denomination banknotes from circulation. However, 2000 notes continue to remain as legal tender. RBI advised banks to stop issuing 2000 denomination banknotes with immediate effect. The 2000 denomination banknote was introduced in November 2016 under Section 24(1) of RBI Act, 1934, primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of legal tender status of all 500 and 1000 banknotes in circulation at that time.

Disclaimer: The views and recommendations given in this article are those of individual experts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:3 Jun 2023, 01:09 PM IST
Business NewsMoneyPersonal FinanceHow does ₹2,000 note withdrawal impact your bank FD rates? This is what experts say

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