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| Go beyond FDs, banks have much more on offer |
| Atinesh Bhasin / Mumbai Apr 03, 2009, 00:10 IST |
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This is the last of a four-part series on how to strike the best deals in auto and home loans, fixed deposits and insurance products with assured returns.
Makrand Raina opted for bank deposits in order to save regularly. While he was looking for banks that offered the highest rates on fixed deposits, he realised that some financial institutions have customised their deposit schemes.
For instance, the country’s largest bank, State Bank of India (SBI), has about five different schemes. Apart from tax-saving, recurring deposit and term deposit, the bank also offers a multi-option deposit scheme and a reinvestment plan.
Housing Development Finance Corporation (HDFC) has gone a step further. The non-banking financial company (NBFC) has deposits based on variable interest rate.
“I discovered later that these schemes were modifications of the traditional products. They just offer additional features,” says Raina.
Let’s look at some of these ‘non-traditional’ products on offer:
Floating Rate Deposit
Floating rate deposits are linked with the financial institution’s benchmark rate. For instance, HDFC links it to the fixed deposit rate. The interest rate changes at the beginning of each interest period.
Apart from HDFC, Lakshmi Vilas Bank (LVB) and Indian Overseas Bank (IOB) also offer this scheme. Currently, the interest rate of HDFC varies from 8.6-9.55 per cent, depending on the scheme and tenure. And the minimum investment amount ranges from Rs 10,000 to Rs 40,000.
LVB accepts a minimum investment of Rs 1 lakh and the tenure is five years. The current interest rate for a five-year deposit is 9 per cent. IOB has also set the minimum investment level at Rs 1 lakh. But the tenure can be of three to five years, with the current interest rate being 8 per cent.
“These deposits rarely make sense for investors as deposits are used to get a fixed amount of income,” said Suresh Sadagoapan, director, Ladder7 Financial Advisories.
Deposit With Overdraft
As the name suggests, this type of deposit comes with an overdraft facility. A customer needs to sign up for a deposit of a tenure of more than six months. The interest rate payable depends on the existing fixed deposit (FD) rates.
Here’s how it works: If you have a deposit of Rs 10,000 with the bank, it will open a current account. It will allow you to use 90-95 per cent of the deposit amount as a short-term loan. The interest earned is 2-3 per cent more than what you receive in a fixed deposit. Basically, the overdraft facility allows the person to use a part of the money for a short duration without breaking the deposit.
Punjab National Bank calls this deposit as Spectrum Fixed Deposit Scheme and it can be started with as little as Rs 10,000. The bank provides a cheque book and an ATM card too. There is no penalty on breaking the FD. Other banks that offer similar schemes include Corporation Bank (Ready Cash Deposit) and HSBC (SmartMoney Account).
“This account is as good as having a savings account but with higher returns,” said an investment adviser.
Partial Withdrawal Deposit
Banks also allow the investor to withdraw some part of the money in an FD. This is done by breaking your single deposit into multiple ones. Most banks break it into multiples of Rs 1,000. When you sign up for a deposit of this kind, the banks provide a savings account too.
SBI offers such a scheme, called Multi Option Deposit (MOD). Whenever the depositor needs funds, he has to withdraw a minimum of Rs 1,000 or its multiples. The minimum balance is Rs 10,000 and the deposit can be made for a period of 1-5 years. Other banks that provide such deposits with similar facilities include Punjab National Bank (Anupam Account), HDFC (Super Saver Facility) and Corporation Bank (Money Flex). If required, these banks also provide an overdraft facility.
This account comes in handy for investors who have large sums of money tucked away in a fixed deposit.
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