Your yearly ‘fix’

IIPM BUSINESS & ECONOMY

FDs have become the most lucrative
For all those who’ve been cribbing about interest rate hikes, take heart, as the liquidity crunch in the banking sector has forced banks to raise interest rates on fixed deposits too, in order to mop up more funds. As Sumit Bhasin, DM, RLBP, Kotak Mahindra puts it, “There has been a change in the CRR (from 5% to 6.5%), so in order to maintain reserves in the banks and for lending money, the Fixed Deposits rates needed to be increased.” As for customers, the high deposit rate scenario (touching 11.3% a year, for bulk deposits) presents a super opportunity. Higher returns, coupled with shorter lock-in periods and insurance freebies under the Deposit Insurance & Credit Guarantee Scheme, are making these offers more lucrative.

But it would be sensible to note that while there is no ceiling to avail the benefits, to reap effective interest offerings, a minimum deposit of Rs.1 lakh is a must. Moreover, in several cases, no interest is paid if the deposit is withdrawn before the lock-in period expires. And of course, all the interest earnings are taxable. Sigh, there goes our yearly ‘fix’!

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative