The Life Savers Called Online FDs

wealthymattersThe one good think about fixed deposits is the absolute predictability of returns, as long as they are not closed prematurely. Add to this that unlike a lot of other fixed income instruments, fixed deposits are available for all tenures upto 10 years, and you can now use fixed deposits to design your own financial products.

The only drawback is the extremely low deposit insurance  in India.The Deposit Insurance and Credit Guarantee Corporation provides insurance to each customer of a Scheduled Bank for deposits up to Rs 1 lakh in case of  bank failure. This limit is applicable across all the deposits, including savings, current, fixed and recurring. This limit remains Rs 1 lakh even if the sum of all deposits (including accrued interest) exceeds the same. Worse, non-scheduled banks ,companies and other institutions offering fixed deposits don’t provide this small comfort either. Of of what use is predictability of returns if basic security and return of capital is not guaranteed ? Read more of this post

Risks Of Dealing With Co-operative Banks

wealthymattersCo-operative banks sometimes offer higher interests on FDs than PSU banks.This makes their deposits interesting when inflation remains high and investors are trying to grab the last paisa in returns.Moreover,when these banks are scheduled(Link),they offer the comfort of RBI supervision and deposit insurance.

However,parking your money in these banks,still carries a measure of risk,as can be seen in the Kapol bank case.Link.The money in your FDs might not be available as and when you need it.

Often the RBI merges weak cooperative banks with stronger ones.In such cases restrictions are imposed on transactions by the customers of the weak bank,to ensure that this weak bank doesn’t collapse.This can be a source of hardship,if you need to access your money urgently.

So always park only a part pf your corpus in any one co-operative bank.Also remember that the RBI makes allowances in case of real distress,but you will have to make your case before top management and wait for them to exercise their discretion.

Scheduled Co-operative Banks

wealthymattersIf you are tempted to chase bank deposit rates by investing in co-operative banks,make sure that they are scheduled.

Scheduled banks are those whose names have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.RBI  includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.One such criterion is deposit insurance.So if you don’t have the skills and means of evaluating the strengths of co-operative banks,restrict yourself to only the scheduled ones to safeguard your investments.

You can get a list of Scheduled co-operative banks here:Link



Bank Fixed Deposits

wealthymatters.comA bank FD is a savings instrument where you deposit an amount with the bank for a fixed duration.You earn a fixed rate of interest on this investment. The interest rate is fixed at the time of the investment – even if interest rates change during the tenure of the FD, the interest that you earn on your FD remains fixed. A FD is also called a Term Deposit at times, as it is an investment for a pre-defined term.

All banks have their own rules on minimum deposits.Most nationalized banks will start a FD with just Rs.1000.

The tenure of a FD can be anywhere from 15 days to 10 years.The rate of interest offered on a FD depends on various parameters: the prevailing interest rates, the duration of the FD, the amount of the FD, your age, etc.Usually, the longer the tenure of the FD, the higher is the interest rate.However,when the economy has a liquidity crunch,banks do offer higher rates on short-term deposits too.They also come out with Special Term Deposits of more unusual tenures such as 555 days, 1001 days etc.Most banks offer a different rate of interest on FDs of more than a certain amount, usually Rs. 15 Lakhs.Also, most banks offer an extra 0.5% per annum to Senior Citizens.Some banks also offer different rates for Trusts and Societies. Read more of this post

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