Fixed deposits – Nationalised banks offer better interest rates than private banks
Interest rates on fixed deposits have been dropping for over a month. Where should you park your money? Nationalised banks are better options compared with private banks
You may be searching for higher interest rates to lock your savings for one year or more. Over the last one month, long-term fixed deposits (FD) rates have been on a decline. It started with State Bank of India (SBI) slashing the rates, which now stands at 8.5% p.a. for any FD term of one to 10 years. The long-term FD rates of SBI are less competitive when compared to many other nationalised banks, which still give 9.25%-9.35% p.a.
Bigger private sector lenders like ICICI Bank, HDFC Bank and Axis Bank also moved quickly to adjust their rates, which are usually 0.25% to 0.5% higher than SBI rates. The maximum rates with ICICI Bank and HDFC Bank are 8.75% p.a.; while Axis Bank offers 9% p.a. It means nationalised banks are still a better bet for higher interest rates when compared to big private banks.
After a delay, smaller private players like Kotak Mahindra Bank, YES Bank, Karur Vysya Bank and IndusInd bank lowered their rates to 9%-9.25% p.a. Till 4th October, cooperative bank like Saraswat Bank was offering 10% simple interest paid quarterly, which is now reduced to 9.25%. While locking at 10% is not possible today from well known banks, nationalised banks can get you 9.3% to 9.35% interest for a FD of one to two years tenure, which is a good option.
Few cooperative banks are offering 9.75% to 10.25% interest rate on FDs today. But safety of your funds should have higher priority than earning 0.5% to 1% more interest. Moneylife foundation highlights this point in ‘How to be safe with your money’ seminars.
Moreover, smaller cooperative banks can charge higher penalties for premature withdrawal and therefore liquidity of the FD before maturity can be a concern. For example, Thane Janata Sahakari Bank does not allow premature withdrawal, which is a big drawback and risk for saver.
Ensure that your FD penalty clause for premature withdrawal is not worse than the industry standard which is: “If the depositor opts for premature closure, 1% penal interest shall be charged on the rate applicable for which the deposit remained with the bank.”
Any wording better than this for long-term FD of one year or more will be to the advantage of the saver. Bank of Maharashtra charges no penalty for FD up to one year term. SBI charges 0.5% penalty for FDs of one year or more duration that is less than the rate for which deposit remained with the bank.
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