Are Independence Day deposits attractive to investors?

The good old fixed deposit has always remained one of the most popular investment products for Indians of all colors. The lure of security and assured returns is hard to avoid for most. Recently, amid Independence Day celebrations, public sector banks such as SBI (State Bank of India) and BoB (Bank of Baroda) have offered special fixed deposit schemes (up to ₹2 crore ) with higher interest rates for investors. This follows the recent 50 basis point rate hike by the RBI. Moreover, the growth of bank credit exceeds that of deposits. Therefore, to fund retail loans in the upcoming holiday season, these banks are trying to offer attractive FD programs.

What is offered

BoB has developed a special Tiranga FD for two terms – 444 days and 555 days. The bank has indicated that deposits due (which can be withdrawn before maturity) will be granted interest rates of 5.75% and 6% respectively. Non-redeemable deposits (where early withdrawal is not possible) will bear a higher interest rate of 15 basis points. The offer is available until December 31. BOB does not charge a penalty for early withdrawals up to ₹5 lakh. For the window of ₹5 lakh to ₹1 crore, 1% is charged as penalty and beyond that it is 1.5%. For a similar term, some banks offered higher FD rates. Some of them are Canara Bank with 6% for 666 days, Axis Bank with 6.05% for 17-18 months, Indian Overseas Bank with 5.6% for 444 days and Indian Bank with 5 .4% for 1 to 2 years. For similar mandates, some private banks such as IndusInd Bank, Bandhan Bank and IDFC Bank and some smaller finance banks offer even higher interest rates, in the range of 6.5-7%.

Previously, SBI offered a special FD program called SBI Utsav Deposit, which is open until October 30. Thus, the investors offered the FD a 1,000-day term at an interest rate of 6.1%. The SBI charges a premature withdrawal penalty of 0.5% up to ₹5 lakh and 1% beyond that for all warrants. For similar terms, some banks offered premium rates such as PNB with 5.75% FD rate for 1,111 days, HDFC Bank with 6.1% for 3-5 years and Kotak with 5.9% for 3 at 4 years old. Similarly, some private banks and small finance banks offer interest rates of around 7% for a term of 3 to 5 years.

What should you do?

So far in 2022, there have been three instances where the RBI has raised repo rates and further rate hikes are expected in the coming monetary policies. If these rises actually occur, investors may get better opportunities to invest in FDs at higher rates. Thus, we believe that investors can place part of their money in fixed deposits with a duration of 1 to 2 years now and that too in quality deposits of private banks and small financial banks. These offer higher interest rates compared to Independence Day special deposits from public sector banks, which offer nothing special on this part. Moreover, regular deposits in commercial banks are safe as all deposits up to ₹5 lakh are covered by DICGC’s deposit insurance scheme. Even in extreme cases like happened with Yes Bank, the RBI stepped in to prevent any leaks. Those who are satisfied with a lower interest rate and who exclusively seek public sector bank deposits due to secure returns, may consider investing lower amounts in the BoB Tiranga deposit system due to its short duration. .

Published on

August 20, 2022

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