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Soon, no fixed interest from fixed deposits

india Updated: Aug 20, 2010 02:20 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
Highlight Story

Your fixed deposits (FDs) are not what they used to be.

They are turning tricky as bankers line FDs to match fluctuating interest rate cycles. Which means you cannot take the rate you get on your deposits for granted.

In the new scheme of things, you can choose to have a fixed rate term deposit. But there will be a catch: you will have to pay a penalty if you close your FD before its maturity date. If you choose a ‘floating rate’ term deposit, you may still attract charges for premature withdrawal but the damage is expected to be much lower.

Industry leader State Bank of India has already launched its variable fixed deposit scheme that is linked to its base rate. Other banks may follow suit.

“I see the market moving in that direction and we are looking at this as well,” said K.V.S. Manian, group head, retail liabilities, Kotak Mahindra Bank. “It will take some time for retail depositors to accept it but they will get used to it.”

Financial experts, however, said banks should ensure they are transparent in passing on the benefits of rising interest rates. They should not act they way they did in the case of home loan rates where they hiked their rates when the interest rates rose, but lagged behind in passing on to the consumers the benefit of a rate decline.