Does your bank FD pay less interest than your savings account?

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). 

Comments
Avinash Murkute
1 decade ago
In one recent case of one of my friend, when we wrote to HDFC bank to reverse the penalty for non-maintenance of AQB without informing the customer for change in policy from 5K to 10 K, first they refused but later reversed 3.5 K penalty. This info can correspondence from HDFC cab be shared if anyone is having similar issue with HDFC (AQB) penalty reversal. Hope HDFC being an ISO certified, honors their decisions PAN-India.
Rambabu Shastri
Replied to Avinash Murkute comment 1 decade ago
Thanks. I know this is case with several banks and this is the reason data in their annual and quarterly results shows spikes. Penalizing without notification is a just reason to even approach a consumer forum for exemplary damages. Unless for Rs. 350 they are penalized Rs. 350000, they will never learn their lesson. That is also one reason why in India, people get away with grand larceny due laxity of penal provisions in the laws.
Harish Kohli
Replied to Rambabu Shastri comment 1 decade ago
One big earning for the banks is the credit/debit card fees. Despite advice to the contrary, the cards were issued. I surrendered them without using them. But still my account gets debited for the fees. It is reversed when I protest.
Rambabu Shastri
1 decade ago
Banks are now indulging in open window dressing. They are charging the account holders penalties or inflated charges, and only reversing them when they are notified that they have wrongly charged the account holder. HDFC bank introduced Average Monthly Balance unnotified to many customers and charged penalty for non maintenance. They did this to all their account holders who earlier were told they could have 0 balance if they kept FDs with the bank. Such decisions point us to only the fact that there is an upcoming bubble in the way their profits have been shown by window dressing.
Das
1 decade ago
No minimum balance to be maintained in SBI Savings bank A/c?

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?
Rahul Mulchandani
Replied to Das comment 1 decade ago
Yes, that's true. As per one of our internal circulars, there are no charges for non maintainence of minimum balance.

ps - I work at SBI.
Underclass
Replied to Rahul Mulchandani comment 1 decade ago
Good news !
m kumar
1 decade ago
HDFC BANK+MAY BE OTHER BANKS ARE PLAYING A HUGE NATIONAL FRAUD WHICH, RBI, THE GODFATHER OF ALL, IS OBLIVOUSLY IGNORANT/UNAWARE/INDIFFERENT ABOUT!
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?

Harish Kohli
Replied to m kumar comment 1 decade ago
ICICI Bank follows LIFO policy for my Sweep account. Both FIFO and LIFO have benefits depending whether the interest rate is downhill or uphill. Correct me if I am wrong.
I was once protesting against the LIFO policy. More than FIFO/LIFO a greater loss in Sweep accounts is due to the 1% penalty.
Nagesh Kini FCA
1 decade ago
Looks like the interest rate war has really set in.
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.
Harish Kohli
1 decade ago
You have made no mention of the penalty. There is a 1% reduction in the applicable interest rate in case of premature withdrawl.
raj
Replied to Harish Kohli comment 1 decade ago
As mentioned, SBI FD of 7-180 days does not currently have 1% reduction (also called penalty). This is true for deposit Rs15 lakh (9%) or less than Rs15 lakh (7%). There is no penalty.

Currently, SBI FD of tenor >180 days has 0.5% penalty (instead of 1%).
Ashok Visvanathan
1 decade ago
Short term FD rates may be lower than Savings bank rate, as they may be targeting Corporates and Business Partnerships, which are ineligible to have savings account.
raj
Replied to Ashok Visvanathan comment 1 decade ago
True. SBI 7-180 days FD offering 9% for Rs15 deposit is also targetting individuals, companies, institutions, firms, trusts, associations, societies, etc.

The same is target segment for SBI if deposit is less than Rs15 lakh (7% interest).
akshaya
1 decade ago
This article is totally misleading. Large corporates and large current acct holders who earn 0 % int on curr acc r happy to even earn 3 or 4 per on otherwise idle funds coz hardly any other investment avenues come with such high liquidity like money in a bank fd
raj
Replied to akshaya comment 1 decade ago
what is totally misleading? The article is highlighting that many private banks have less than 15 days FD at 3.5% to 3.75% when SBI is offering the same at 7% (9% for Rs15 lakh deposit). Large corporates are also target customer for SBI short-term FD. Will they really want 3.5% from private bank FD or 7% from SBI (9% for Rs15 lakh deposit) for same duration FD?
vishal
1 decade ago
The Target customers are current a/c holders. Since there is no interest for current a/cs, it makes sense for corporates to book FDs even for such low rates instead of keeping the funds idle in current a/c.
avinash murkute
1 decade ago
I have already fought this issue with kotak for their sweet "Chori" auto sweep in and auto sweep out and reported fraud with their Nodal officer, but he couldn't understand the official "chori" and accepted fault by default in the product design. This i have exposed in Jan 2010 and closed my relations with this bank forever. As on date i have Rs. 250 plus due to this dafulter kotak mahindra bandit bank. And why should i forget to mention - they run on software designed by company named infosy s.
Rambabu Shastri
Replied to avinash murkute comment 1 decade ago
Well, most of them do run on Finacle software by Infosys.
Avinash Murkute
Replied to Rambabu Shastri comment 1 decade ago
And many suffer from automated nuisance and technological terrorism of this s/w. Take example of CPC Bengaluru managed by abovenamed company. Employees over their can't read letters as they are suffering letter blindness or paper blindness and software is making double entries in taxation entries and actual entries are suppressed and they have limited knowledge write CIT of CPC Bengaluru. After the first RTI appeal order written in favour of Infosys I am going in appeal with CIC at Delhi to showcase debacles of so called finnacles.
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