Are you overprotective about your funds? Or, are you eyeballing an excellent diversification tool for your relatively riskier portfolio? Then Fixed Income schemes are the best investment option for you. Fixed income schemes are those that help an investor to earn pre-defined returns within pre-defined time frame. These kind of investments are apt for those who prefer lower returns with known risks, rather than, higher returns with unknown risks. There are various alternatives available in India for making fixed income on your investment. Some of them are Bank Fixed Deposits, Company Deposits, Bonds, Debt Funds and Special Saving Schemes (like PPF, NSC, Post office savings etc.). In this article, we will focus only on the Bank Fixed deposit schemes available in India.
Understanding Bank Fixed Deposits:
A Fixed Deposit or Term Deposit (used interchangeably) is a financial instrument provided by Banks. It guarantees to provide you a fixed return on your funds within a pre-defined time period. It is well-liked for its merits of safe returns, fund protection and high liquidity. We have done in-depth research on the Fixed Deposits (FDs) offered by different Banks. And put forward the 10 popular FDs for you to cherry-pick. But before we hop onto the comparison, it is very important for you to understand the criteria for selecting the best FD options available. These criteria are listed as follows:
a) The first and foremost criteria for selecting the FD is the interest rate offered on your Term/ Fixed Deposit. The higher the rate, the more are the returns on your investment. Most Banks have pre-defined grid that shows the rates or percentage returns provided on a specific term. For example, ICICI Bank offers an interest of 8% on FD of 1 year to 389 days and 9% on FD of 390 days to 2 years. That is, the investor can earn extra 1% if he selects FD of 390 days, over an FD of 389 or even 365 days. So it is always advisable to assess the highest interest rate offered by each Bank first, and then verify other criteria like time period etc.
b) As most of the investors prefer FDs for its higher liquidity and tend to close the FDs prior to its maturity date in case of an emergency. So, it is always recommended to verify the premature withdrawal penalty before choosing the right FD, if you are one of those kinds. Most of the banks, as penalty, provide you 0.5% to 1% lesser interest rate. And the interest, in this case, is calculated at the rate applicable for the period the deposit was actually held with the Bank.
c) As you are investing your money that you might want to withdraw, add or change tomorrow. So it is very important to choose the Bank that provides Banking Comfort to you. The Banking comfort can range anything from convenience due to internet banking, proximity to the branch, good customer care or having your own personal banker just a phone call away. Most of the investors prefer the Bank wherein they already have their savings account for other investing options.
Top 10 Fixed Deposit Schemes in India in 2014:
Looking at the sole criterion of Interest rate, some of the Cooperative Banks top the chart by offering interest rate as high as 10.25% for a period of 1 year to 15 months. But these banks fall lowest in the category in terms of convenience of banking and freedom to operate the account in case of emergency fund withdrawal. Individual opinion may differ however. After doing a research, I present my personal views on the 10 best Fixed Deposits as follows:
| S. No | Bank Name | Maximum rate offered | Time Period on which maximum rate offered | Prepayment Penalty | Others |
| 1 | State Bank of Patiala  |
9.25% | 1 year to 554 days | 0.50% below the rate applicable for the period deposit has remained with the Bank | In case of premature renewal, the rate of interest for the period up to the date of renewal has to be rate applicable for the period for which the deposits had already run, prevailing on the date of opening the original deposit account |
| 2 | IDBI Bank |
9.30% | 500 days | IDBI’s Freedom Deposit has No penalty on premature withdrawal | Option to either re-invest the interest or get it transferred to your savings account on monthly/ quaterly/ annually as desired by you. |
| 3 | Yes Bank |
9.10% | 18 months 8 days to 18 months 18 days | No penalty on premature withdrawal | Wide range of tenures, ranging from 7 days to 10 years; Withdraw your deposit in units as low as Re 1/-; Funds withdrawal through sweep-in facility; Avail of overdrafts against your deposits |
| 4 | SBI |
9% | 1 year to 3 years | Penalty for premature withdrawal for all tenors will be 0.50% p.a. | No interest will be paid if the deposit remains with the bank for less than 7 days period. |
| 5 | Punjab National Bank |
9% | 1 year to 10 years | Penalty of 1% and the interest rate payable would be contractual rate minus 1.00% OR the rate under the scheme on the contractual date applicable for the tenor for which the deposit has actually run minus 1.00%, whichever is lower |
no penalty if the deposit is prematurely closed for the purpose of investment to any other term deposit of the bank provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract. |
| 6 | HDFC Bank |
9% | 1 year 1 day to 1 year 16 days | “1%.”.However, penalty for premature withdrawal will not be applicable for FDs booked for a tenor of 7-14 days. | Option to choose from facilities like super saver and sweep-in facility |
| 7 | ICICI Bank |
9% | 390 days to 2 years | 0.5% for Original Tenure of Deposit less than 1 year & 1% for tenure greater than 1 year | A wide range of tenures ranging from 7 days to 10 years; Partial withdrawal is permitted in units of Rs 1,000. The balance amount earns the original rate of interest; Facility of automatic renewal; Loan facility is available upto 90% of principal and accrued interest. |
| 8 | Kotak Bank |
9% | 12 months to less than 15 months | Nil penalty on a term of upto 181 days and 0.5% on term greater than 181 days | Min. deposit of Rs. 10,000/- (Rs. 25,000 for new customer); Partial/Premature withdrawal of Term Deposit is permitted; Choose to receive interest monthly, quarterly or keep it invested till maturity; For Term Deposits with tenure below 181 days, interest will be calculated at maturity as Simple Interest |
| 9 | Axis Bank |
9.10% | 2 years to less than 3 years | interest rate shall be 1.00% below the card rate, prevailing as on the date of deposit, | On or before the maturity date, you can make the following changes in the rollover instructions of the deposit: Change in tenure; maturity instructions; payment instructions; principal (only reduced amount); Principal to rollover of Principal + Interest, or vice versa. |
| 10 | HSBC Bank |
8.50% | 365 days | Penal rate of 1% on premature withdrawal for any value of fixed deposit irrespective of the date of placement. | Min amount required to open a Fixed Deposit is Rs. 10,000 |
Note: The above Interest rates are for regular deposits of less than Rs.15 lacs. Most of the banks provide additional rate for senior citizens which is not included in the above research.
Disclaimer: These are the author’s individual views on the popular FDs in India and are not ranked by the author in any particular order.