HDFC, Axis and ICICI Bank offer less than the minimum savings rate interest (4% p.a.) for fixed deposits with a tenor less than 15 days. Do you wish to sign-up for a 7-14 day FD from Kotak Mahindra bank at 0% p.a.? Who is the target customer segment for these products?
It may sound strange, but leading private banks like HDFC, Axis and ICICI offer less than the savings account interest rate of 4% per annum (p.a.) for fixed deposits (FDs) with a tenor of less than 15 days. The FD rate for up to 30 days is also meagre in many cases. Several customers roll over existing FDs and may be caught unawares by the pathetic returns offered on these short-term products.
HDFC and Axis Bank offer 7-14 day FDs at a 3.5% p.a. interest while ICICI Bank gives 3.75% p.a. for the same duration. HDFC and ICICI Bank offer 4% p.a. for 15-29 days FD. Interestingly, Kotak Mahindra bank is giving 0% interest for 7-14 day FDs (investment less than Rs15 lakh). Keeping your money in a savings account will make more sense in all these cases!
State Bank of India (SBI) started offering 8.5% p.a. for 7-180 days FDs for a minimum Rs15 lakh investment earlier this week. Today, it is offering 9% p.a. for the same period. It is certainly a good opportunity for savers looking to park their money for a very short duration. The high interest may also represent the liquidity crunch in SBI. Till last week, this kind of deal was only available to those investing Rs1 crore and above. With deposit interest rate at their peak, such an increase in rates by SBI is startling.
There is no penalty for withdrawal after seven days. This means that if a person opens a 180-day SBI FD for Rs15 lakh, the interest rate will be 9% p.a. If you need to prematurely withdraw the FD after seven days, you will still get 9% interest. It is a combination of high returns and full liquidity.
For a person investing less than Rs15 lakh, the SBI FD rate is 7% p.a. for 7-90 days, 7.25% p.a. for 91-179 days and 7% for 180 days. There is no penalty for premature withdrawal of an FD with a tenor of up to 180 days provided the money has remained with the bank for at least seven days. It is certainly a good option because SBI savings account interest rate is still 4% p.a. SBI’s customers, who are unwilling to open new accounts with banks like Kotak Mahindra or Yes Bank to get high savings account interest rate, can do a short-term SBI FD for a minimum of seven days. The FD gets rolled over automatically on maturity for same duration and at the interest rate prevailing on the date of maturity without the person having to intervene.
Moneylife tried to contact several banks, but their answers on FD rates were generic in nature – rates depend on bank liquidity and its strategy, need for having long-term customer relation and that a short-term FD makes less business sense.
Source – www.ratekhoj.com and Moneylife research. Annual bank interest rate for specific FD duration shown in percent for deposits below Rs15 lakh (non-senior citizen).
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As per news paper reports, circular has been issued by the State bank of India to do away with Minimum Balance requirement in Savings bank Accounts.
Any comments?
ps - I work at SBI.
FOR SB TO FD AUTO SWEEP ACCOUNTS, INSTEAD OF LIFO(LAST IN FIRST OUT) METHOD, THEY HAVE DELIBERATELY CREATED A SYSTEM OF FIFO(FIRST IN FIRST OUT), SO WHEN THE FD IS BROKEN, YOUR ORIGINAL/FIRST/EARLIEST FD IS BROKEN MAKING YOU LOSE INTEREST & MONEY. EVEN MOST NATIONALIZED BANKS HAVE LIFO, WHICH IS WHAT IT SHOULD BE AS DEFAULT.
EVEN IN RISING INTEREST RATE SCENARIO, THIS SYSTEM IS BETTER THAN FIFO, WHERE CUSTOMERS LOSE HUGE AMOUNTS OVER A LONG PERIOD!
IS RBI GOING TO BE BOTHERED ABOUT THIS?
I was once protesting against the LIFO policy. More than FIFO/LIFO a greater loss in Sweep accounts is due to the 1% penalty.
A banker I was speaking to rightly remarked that CASA/Current and Savings Accounts are more revenue effective and not costly FDs and his bank is disinclined to promote them except perhaps for the big numbered.
Currently, SBI FD of tenor >180 days has 0.5% penalty (instead of 1%).
The same is target segment for SBI if deposit is less than Rs15 lakh (7% interest).