Dear Friend,

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Best Wishes!!

Anand

Tuesday, June 5, 2012

Invest Wisely in Bank Fixed Deposits


Investing in Bank Fixed Deposits is something that has been covered in this blog time and again. But, the purpose of this article is the direct result of a meeting I had with a friend during my most recent India Trip last week. To give you a hint – This article is about something we need to be very careful about while opening Bank Fixed Deposits.

What Happened in India?

I met a long-time friend just outside a Bank near my house and we went off to the nearby coffee shop for some chit chat. He had a receipt in his hand which looked like Fixed Deposit Receipts issued by the bank. Coincidentally I had just put up some Fixed Deposit in the same bank and the topic of our discussion touched upon the rate of interest. He had deposited Rs. 1,00,000/- at 7.25% per annum rate of interest for a period of 9 months and I had done Rs. 50,000/- for 1 year at the same rate.

I said, how come for two different tenures, the rate of interest is the same? Usually longer tenures have a higher interest rate and so we both went back to the Bank and asked the guy (Teller) at the counter for the Interest Rates list. He hesitated for just a quick second and then gave it to us.

The rates card looked as follows:
6 month 17 days to 9 month 15 days – 7.25% p.a
9 month 16 days – 8% p.a
9 month 17 days to 1 year – 7.25%

Both our initial reaction was what the ****!!!

Usually customers go to the bank with a predetermined duration in mind and the most common durations for the deposits is 6 months, 9 months, 1 year and so on. In this case my friend chose 9 months and I had chosen 1 year. The problem here is – neither of us cared to look at the rates card and if we had, we would’ve got an additional 0.75% rate of interest on our deposits.

What Went Wrong Here?

This situation can be attributed to 3 reasons which are as follows:
Reason 1: Neither of us cared to look at the interest rates card that the bank offered for various deposit periods.
Reason 2: The Interest Rate Card was not displayed prominently in the Bank. Though it was stuck to a pillar in some corner of the bank, it wasn’t in a place where every customer could easily see it.
Reason 3: The Teller did not suggest we look at the various deposit periods and choose the one that would best suit us.

In this case, the biggest blame lies on us because, it is our money and we should’ve been more prudent and wise in our decisions. From a banks perspective, the lesser interest they pay us, the better it is for them. From a teller’s perspective, he is only set targets on how much deposits he needs to mobilize and not the rate of interest. So, both reasons 2 & 3 are ethically Mistakes but Legally Not.

Remember the saying “If you don’t think about what is good for you, Nobody else will” This is totally apt with respect to all Money Related Transactions anywhere in the world.

My friend needed money for his son’s school fee next April, so he could’ve afforded to choose the 9 month 16 days scheme instead of the 9 month scheme he selected thereby getting an additional 0.75%.

He is going to get Rs. 5,437/- as Interest on his 1 lakh deposit at the end of 9 months while he could have gotten Rs. 6,333/- (Rs. 896/- more) for the same deposit amount if the deposit duration was an additional 16 days.

Lesson Learnt:

Always ask for the Rate of Interest offered by the bank for various deposit durations and choose what is best for you. Even if the bank has not displayed it prominently in their premises or if the Teller doesn’t offer you one when you inquire about Fixed deposits, you can DEMAND to see it before you invest your hard earned money.

Nobody and I mean NOBODY can deny you your right to take a look at the rate of interest offered by the bank for various deposit durations before you take your investment decision.

Alternately, you can check out the website of your respective banks and check out the interest rate beforehand and decide on the tenure before you actually visit the bank.

So, be cautious and make the best investment decision.

Verdict:

The whole idea of Fixed Income Investments is Safety of the money deposited & Guaranteed Returns. If the same amount will earn us a higher rate of interest, then we would rather choose that instead of something else.
After my experience as above, I did some digging and found that almost all banks had some sort of difference in rate of interest with some rare date combination like 444 days or 9 months and 16 days or something on those lines getting higher rate of interest than the regular 1 year or 2 year deposit durations. So, please be cautious and careful while making fixed deposit investments.

Happy Investing!!!

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