DCB Suraksha FD: Should you go for it?

The recent rout in the equity markets, coupled with the 75 basis points cut in the repo rate by the RBI, makes this an opportune time to lock a part of your portfolio in bank fixed deposits offering superior rates.

DCB Bank’s three-year Suraksha Fixed Deposit, while offering good returns, also comes with free life insurance cover. Here, we explain how the product works and whether you should go for it.

Free cover

The Suraksha FD is essentially a three-year fixed deposit which, apart from paying you 7.6 per cent interest on your FD (with quarterly compounding), also covers your life through the deposit term.

For this, DCB Bank has partnered with Aditya Birla Sun Life Insurance.

The interest offered by the bank is superior to most of its peers in the private space, which currently offer rates of 6-7.5 per cent on three-year FDs. Public sector banks offer lower rates of 5.5-6.25 per cent for a similar term. However, small finance banks (SFBs) offer rates as high as 9 per cent for a three-year tenure.

Along with the proceeds of the FD, the free insurance cover assures the nominee a sum equivalent to the amount deposited, in the event of the death of the deposit holder (only the first holder, in the case of a jointly held deposit) during the tenure of the deposit.

Apart from being free of cost, the insurance cover is granted sans any medical tests.

The insurance cover bundled in the product should, however, not be the driving reason for you to pick the product, since the cover as well as the policy tenure might be too small. There are also some caveats that you should be mindful of.

Fixed tenure

One, you have to lock in your fund for a fixed three-year period.

In the recent past, rate cycles have been getting shorter and hence, locking into a long-tenure deposit can make you lose out on better rates for reinvestment.

However, currently, it appears that the Covid-led crisis can impact economic growth over the next 1-2 years. Interest rates could hence remain soft for a longer period, but uncertainty persists.

Two, while anyone can invest in the three-year deposit, the insurance cover is only available for investors aged 18-53 years.

Three, while there is no cap on the maximum amount that can be deposited, the maximum sum assured in the policy is capped at ₹50 lakh, irrespective of the amount deposited. Also, the minimum amount required to be deposited is stipulated at ₹10,000.

Four, if you wish to opt for premature withdrawal, the insurance policy ceases to exist. If you are in dire need of cash, instead of breaking the FD, you can opt for the loan against deposit offered by the bank, to keep the insurance policy intact.

The bank offers up to 80 per cent of the amount deposited as loan, charging you an interest of 2 per cent over the FD interest rate.

In case of a partial premature withdrawal, your sum assured is lowered accordingly.

Go digital

At the current juncture, when social distancing and ‘stay home to stay safe’ are the new norms, Suraksha FD’s option to invest online is handy.

The Zippi feature on the bank’s website helps you with this. For this, customers need to have an Aadhar card, PAN and a mobile number linked to Aadhaar.

After uploading the required documents, one can transfer funds from the respective bank account to DCB, through net banking.

The interest thereon and the maturity value will automatically be credited to the same account.

About DCB Bank

DCB Bank is a well-established private bank with 334 branches. It currently offers loans to micro-SMEs, SMEs, mid-corporate, microfinance institutions (MFI), NBFCs and other financial institutions, government and PSUs.

As of December 2019, the bank had a loan book of ₹25,438 crore, with gross and net NPA at 2.15 and 1.03 per cent, respectively. The bank also has a sound capital adequacy ratio of 15.8 per cent.