Mahesh had a deeply ingrained habit of saving. Perhaps it came from his father. And so, every month after calculating the money required for the expenses to be incurred, he would set aside an amount to invest in an FD. He had been doing it for years now. However, when he visited his bank recently, an executive started enumerating the benefits of a floating rate fixed deposit to him. He was confused. Till now he had never heard of a floating rate FD.
In its monetary and credit policy of 2002-03, the Reserve Bank of India (RBI) had advised all banks to offer flexible-rate deposits alongside the fixed-rate option. However, despite the go-ahead from RBI, most banks have so far been offering fixed deposits with a specified rate of interest which varies from one bank to another. These have been the most popular amongst Indians, with more than 95 percent households preferring to park their money in deposits with a fixed rate of interest.
As is evident by its name, a floating rate FD, offers an interest rate that varies according to the change in the bank’s base or benchmark rate. This is unlike a fixed-rate FD in which the interest rate remains unchanged during the tenure of the deposit. Base rate is the threshold interest rate below which a bank cannot make any commercial, retail or personal loans.
Each bank has the freedom to fix its own base rate. Depending on the tenure of the floating rate fixed deposit, the interest rate changes to narrow the gap between itself and the prevailing base rate of the bank. The greater the tenure, the lesser the gap between the interest rate offered by the bank and the base rate. Infact, they may even be at par.
This means that a floating rate FD has the capacity to offer you higher returns than a plain vanilla fixed deposit thus making them an attractive investment option. However, there is a caveat. It makes sense to invest in a floating rate fixed deposit, only when the economy is booming and interest rates are expected to rise. This is unlike fixed deposits with a fixed rate of interest which give guaranteed returns irrespective of the interest rate scenario.
When the interest rates are falling, investing in a floating rate FD may backfire, since not only will they fetch lower returns, a premature withdrawal with a penalty levied on it, may reduce your returns further. It is not easy to predict the interest rate cycle to ensure that you exit a deposit with a floating interest rate in time. This is especially difficult for first time investors. Also you cannot forecast whether or not the market will fall again or remain steady after having fallen once.
So for those looking for safety and security of their hard earned money it makes sense to stay invested in traditional fixed deposits like the ones available on Finserv MARKETS. These offer attractive interest rates of upto 8.70 percent, along with flexible tenures and easy loans against FD in case of an emergency.
To safeguard yourself from the uncertainty associated with interest cycles, you can stagger your investments across fixed deposits. This ensures you have a steady supply of money when you need it, as well as creating wealth with the money lying idle in your savings account. Finserv MARKETS offers you the facility of multiple deposits, starting for as low as Rs 25,000. So it’s not necessary to accumulate a huge corpus to begin saving. You can start small, and keep on saving for your future financial goals even with limited amount of money.
It is your choice what kind of a deposit you want to opt for to grow your money. In case you decide to opt for a fixed deposit with Finserv MARKETS, you can bid adieu to standing in long queues. Log onto the website wither through your smartphone or laptop right in the comfort of your home or office and complete the process in a few easy steps online.
Choose the amount you wish to invest and the period of investment in months. Specify the interest payout option and submit a few necessary documents such as your passport photograph, PAN and an identification proof such as Aadhar, passport, Voter Id etc. Upon verification of these documents, proceed with payment online. You can be the proud owner of a fixed deposit within minutes.
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