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Time to lock into Fixed Deposits - Part III

After completing the first two parts on the attractive fixed deposit interest rates currently prevalent in the banking sector, I have increasingly come across advertisements from banks over the last week or so where the interest have still gone up from the 10.50 - 11.00% bracket to above 11%. This is particularly very evident in the case of private sector banks.

The rates looks very tempting for lay investors. But at the same time, it is very important to note that the time-frame of the deposit should be decided by the funds requirements of the individuals. Just because a bank offers higher interest rates, the deposits should not be contracted for a longer time-frame. It should be aligned with the individual's funds requirement before the tenure of the fixed deposit is committed.

Also one should also remember that Fixed Deposits are only a portion of your investment portfolio and higher interest rates alone should not influence you to have a very high proportion of your investments in fixed deposits. When we take into account the inflation rate of around 8%, and the deposit rate of 11%, technically it means that you are able to get a real effective interest rate of only 3% or so pre-tax. Post-tax, the return would be much lower. Therefore, in order to grow your investments and build the corpus for meeting your future financial goals or retirement, you need to ensure that investments are also channeled to other investment avenues like equity, gold etc.,

Just for information purposes, few attractive interest rate options which has come up from private sector banks are:
City Union Bank is offering 11.30% on 1000 day deposit. Karur Vysya Bank is offering 11% on a 3 year deposit.
Standard Chartered Bank is offering 11.00% on 90 days short term deposit.
In Chennai, REPCO Bank Ltd., is offering 11.50% on 40 months deposit. But please note that REPCO Bank deposits doesnt come under Deposit Insurance Guarantee scheme.

2 comments:

Anand said...

Very Useful Post ! Thanks karthik.

Venkat Muthukrishnan said...

Hi Anand,
You are welcome!!
Kind regards
Venkat @ karthick

PS: Anand, I have this great identity crisis all my life. I am called by these two names across my friends and relatives circle. This dual name itself deserves a separate post!!!