Fixed deposits have always been a vital part of an investor's portfolio because of the assured returns it offers. Traditionally FDs have been plain vanilla products but nowadays amid cut-throat competition, banks have modified these keeping in line with customers' requirements.
Some interesting deals available in the market are described below:
Insurance
Some FDs have insurance attached to them. In such a case the basic product remains the same with an additional benefit of insurance. But these depend on the deposit amount and maturity.
For instance, a bank may give a free accident cover amounting to Rs 5 lakh on a three-year deposit of Rs 25,000 with a yearly interest of 8 per cent. This increases the value of the product.
Many banks provide accident insurance only. The sum assured varies between Rs 3 lakh and 7 lakh.
Usually, such a cover has a number of clauses attached to it. Such policies should not form a part of your overall insurance needs.
Floating rate deposit
Most FDs carry a fixed rate of interest and a fixed tenure. However, some banks and non-banking finance companies (NBFCs) have deposits that have a floating interest rate.
HDFC, country's largest mortgage lender, has a floating rate deposit where the interest rate is declared every quarter.
Reinvestment of interest
Some banks provide the facility of reinvesting the interest earned at the prevalent rates.
Suppose you are earning Rs 2000 as interest every quarter. The bank will start a new FD with this amount at the prevailing interest rates.
No penalty
Fixed deposits are instruments with fixed tenures and if the depositor withdraws amount before the maturity, the institution charges a penalty. In such a case, the overall return is less.
However, there are some banks that do not charge this penalty if the FD is broken before the maturity. For investors seeking flexibility, such deposits come quite handy.
Time period flexibility
Most of us take a fixed deposit for a specific goal which could be anything from purchase of an expensive item to child's marriage. These plans might get postponed and the depositor might want to extend the tenure of her/his FD.
In such a scenario, the depositor can wait for the deposit to mature and then reinvest it. But there cannot be surety of interest rate in the future.
Some banks have started providing FD options that allow a depositor to extend the tenure without major changes in other conditions.
Breaking deposits
Multiple deposits of smaller denominations can lead to a large amount of paperwork. This is usually done by investors who need money at various stages in future.
They are reluctant to deposit everything in bulk to avoid breaking the deposit later.
As a solution to this, banks have introduced products where a bulk deposit is divided into deposits of smaller denominations as per the investor's requirements. Such deposits have a higher earning benefit.
Photograph: Rediff Archives
