Are special tenor deposits for you?

FDs have generally been the darlings of investors looking for capital protection along with assured high-single-digit returns. But as the theme of financialisation of savings is running hot even in these expensive market conditions, banks, struggling to garner deposits are going the extra mile by offering special term deposits at special rates.

These special deposits are understood to be a consequence of the meeting held by the RBI Governor with bank CEOs, to bridge the asset-liability mismatches, with the credit-deposit ratio beginning to worry the regulator.

Though a rate cut, which seemed imminent towards the end of the current fiscal year, currently seems unlikely with the global inflation staying firm, it is safe to say that interest rates have peaked out. The flurry of special deposits launched by banks will help conservative investors to lock in their investments for a specific tenor, protecting them from any rate cut shocks and reinvestment risk.

And in this regard, State Bank of India (SBI) and Bank of Baroda (BoB) have come out with special term deposits named Amrit Vrishti and Monsoon Dhamaka, effective from July 15, 2024.

Features

While the interest rate for one-year and two-year deposits of SBI have been unaltered at 6.8 per cent and 7.0 per cent respectively, the special term deposit scheme Amrit Vrishti has been launched at an interest rate of 7.25 per cent for a tenure of 444 days. Senior citizens are extended an additional 50 bps, making the effective interest rate even more attractive at 7.75 per cent. The scheme is available for investment effective from July 15, 2024, until March 31, 2025, and caters to both domestic and NRI investors.

This scheme offers investors flexibility to invest both through online and offline routes via SBI branches, YONO SBI and YONO Lite (mobile banking apps), and SBI internet banking (INB).

This is comparable with Monsoon Dhamaka scheme rolled out by Bank of Baroda, which offers 7.25 per cent and 7.15 per cent for 399 days and 333 days, respectively. And similar to SBI’s special scheme, senior citizens get an additional 50 bps. However, this scheme limits the maximum amount of deposit to less than ₹3 crore.

In addition, Monsoon Dhamaka offers an option to choose between non-callable deposits (deposits that can be withdrawn before their maturity) and callable deposits (deposits that cannot be withdrawn before their maturity). Non-callable deposits offer an additional 15 bps, which takes the interest rate up to 7.90 per cent but this offer is only for deposits above ₹1 crore and less than ₹3 crore.

An investment of ₹1 lakh in Amrit Vrishti would grow to around ₹1.09 lakh at the end of the tenure of 444 days while a similar investment in BoB’s special deposits would grow to around ₹1.08 lakh and ₹1.07 lakh at the end of 399 and 333 days respectively.

Our take

Among public sector banks (PSB), Indian Overseas Bank (IOB) offers the highest rate of interest on term deposits at 7.3 per cent for a tenure of 444 days while Punjab and Sind Bank and Bank of India match the same return for a tenure of 666 days.

IOB’s FD would be most comparable as the tenure is in similar range with those of the special deposits discussed above. IOB also offers both online and offline means to open deposits with them.

When compared with private sector banks, IDFC First Bank and IndusInd Bank offer 7.85 per cent for 399 days and 7.75 per cent for 15 months, respectively, which is more than the interest rates offered by SBI and BoB under their special schemes.

On the other hand, Equitas SFB offers 8.50 per cent for 444 days up to ₹2 crore and Ujjivan SFB offers 8.25 per cent for 365 days for deposits of similar size. Investors investing up to ₹5 lakh can consider SFBs too as SFBs are also insured with DICGC, which puts them at par with private banks with regard to the safety of deposits up to ₹5 lakh.

Investors are advised to take into consideration the financial strength of the banking institutions before opting for their product offerings. Interest should not be the sole deciding criterion.