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When it pays to be smart and nimble

business Updated: Dec 03, 2008 21:21 IST

As the battle for bank deposits increases, there are specific points that need attention of investors. This is important because these small points can make all the difference as far as earning higher rates of return are concerned.

This also makes for a smart investor who is able to gain from the changing position and who can ensure that their funds are being used in the most effective manner. Aspects that need attention cover various factors, including the following.

Specific time-frame
Investors have options to earn a higher interest rate by keeping their funds invested for a specific time period. One simple point that was usually valid earlier was that interest rates would rise with increase in time period of deposits.

So a five-year deposit would pay a higher rate of interest than a two-year deposit and so on. Now this is no longer valid, and a bank fixes the interest rate depending upon the time period for which they need funds. In such a position it would be wise to look at the entire range of deposits and rates that are available before making an investment decision.

Change for a period
The other thing that is also witnessed is that the change in the interest rates for the bank need not be uniform nor will be seen across all time periods.

A bank might choose to change the interest rate for a particular time period while leaving all the other details unchanged.

This can suddenly change the position with respect to the earnings ability of an individual and hence he needs to keep an eye out for such a situation. To take an example, recently a public sector bank raised the deposit rate for the 91-179 day period by 1 percent while another bank raised the rate for the 1-2 year time period bracket. This was witnessed at a time when there were expectations of a cut in interest rates by banks.

Making the decision
The final decision that has to be made depends on the time period for which the funds can be invested as well as the position prevailing across range of banks.

Undertaking a search for this aspect will be quite helpful in ensuring that the right amount of money goes to the area where it will yield higher returns. At the same time, one must not forget that just choosing the highest rate option might not work out well because this can leave the person with an investment that they might not exactly want and getting liquidity when required could become a tough task.