What are floating rate fixed deposits?

A floating rate fixed deposit (FD) is where the returns of the investment are linked to a reference rate, like the Reserve Bank of India’s repo rate or a Treasury Bill yield. An investment in such an instrument does not entail a fixed interest rate for the entire term, but shifts in-line with the reference rate. Typically, an FD entails a fixed rate of return, which remains constant throughout the tenure of the deposit. With the RBI likely to increase the repo rate further, a floating rate FD will offer more returns to depositors. It also shields one’s investments from the directionality of future interest rates and inflation. Yes Bank, on June 21, launched a floating rate FD linked to the repo rate.