Top Bank FDs in India for 2015

Bank fixed deposits have been an investment staple for most Indians and as the year 2015 gets underway, we find these fixed-income options have not lost their allure.

What makes bank FDs a favorite among Indian investors?

Even as financial markets in India develop and diversify, bank FDs continue to win over other channels of saving. The main reasons for this are:

Simplicity - FDs are easy to understand. Money is deposited with a bank for a particular period of time in return for a fixed amount of interest. At the end of the deposit period, account-holders receive their principal investment along with the interest earned on it.

Safety - Banks are considered to be the safest financial institutions in India, operating within a well-monitored framework, under the watchful eye of a regulatory authority viz. the RBI.

Guaranteed returns - Interest rates on fixed deposits are pre-determined and remain unchanged throughout the deposit period. This makes it easy for an investor to calculate how much is due on maturity. Interest rates currently vary between 3.5% to 9.25% for holdings between 30 days to 5 years.

Flexibility - Bank FDs let investors balance returns and liquidity. Deposits can be held with banks for varying tenures, starting as low as 7 days and going as high as 10 years. Additionally, depositors can choose to have interest credited to their accounts at regular intervals (usually every quarter). This creates a regular income stream without affecting the principal investment; this is especially useful for retired persons.

Accessibility - Opening a fixed deposit account is easy with a multitude of options available from different banks located across the country. Paperwork is almost negligible and with more FD schemes being made available online, the application process is now quicker and more convenient than ever before.

Easy to manage - There is little need to monitor bank deposits since investors know exactly how much is due to them on maturity. Interest rates don’t have to be tracked as they remain unchanged from the start to the end of the deposit period. Interest rates only have to be reviewed on renewal.

Best Bank FDs Rates for 2015

Below is a round-up of the highest interest rates offered on different FD schemes across the country and the banks that offer them. Interest rates depicted are the highest returns offered for a particular tenure, on a per annum basis. These schemes are categorised from a collective perspective i.e. all the sectors combined and further broken down to depict the best schemes for each sector i.e. public, private and foreign banks.

(Rates shown are those in effect during the last week of January 2015* for a deposit amount of Rs.1 lakh)

(All sectors)

Medium and Long-Term Deposits

5 years            9.25%              TMB

1 year              9.1%                TMB

1.5 years.        9.00%              Central Bank of India, Dena Bank, J&K Bank, Karur Vysya Bank,

                                                State Bank of Mysore, TMB

2 years            9.00%              Dena Bank, J&K Bank, Karur Vysya Bank, State Bank of

                                                Mysore, TMB

3 years            9.00%              Dena Bank, TMB

4 years            9.00%              Dena Bank, TMB

Short-Term Deposits

90 days           8.80%              ING Vysya Bank

6 months         8.75%              TMB

9 months         8.75%              Indian Bank,IndusInd Bank,TMB,Yes Bank

120 days         8.70%              ING Vysya Bank

60 days           8.00%              TMB

30 days           7.75%              State Bank of Mysore

*Interest rates are subject to change.

★     Best Public-Bank FD Rates 2015

Medium and Long-Term Deposits

1 year              9.00%              Dena Bank, Central Bank of India, State Bank of Mysore

1.5 years.        9.00%              Dena Bank, Central Bank of India, State Bank of Mysore

2 years            9.00%              Dena Bank, State Bank of Mysore

3 years            9.00%              Dena Bank

4 years            9.00%              Dena Bank

5 years            9.00%              Dena Bank

Short-Term Deposits

9 months         8.75%              Indian Bank,IndusInd Bank

120 days         8.70%              ING Vysya Bank

6 months         8.55%              Syndicate Bank

90 days           7.75%              State Bank of Mysore

60 days           7.75%              State Bank of Mysore

30 days           7.75%              State Bank of Mysore

*Interest rates are subject to change.

★     Best Private-Bank FD Rates 2015

Medium and Long-Term Deposits

5 years            9.25%              TMB

1 year              9.1%                TMB

1.5 years.        9.00%              J&K Bank, Karur Vysya Bank, TMB

2 years            9.00%              J&K Bank, Karur Vysya Bank, TMB

3 years            9.00%              TMB

4 years            9.00%              TMB

Short-Term Deposits

90 days           8.80%              ING Vysya Bank

6 months         8.75%              TMB

9 months         8.75%              TMB,Yes Bank

120 days         8.70%              ING Vysya Bank

60 days           8.00%              TMB

30 days           7.50%              TMB

*Interest rates are subject to change.

★     Best Foreign-Bank FD Rates 2015

Medium and Long-Term Deposits

1 year              8.25%              Standard Chartered Bank

3 years            7.75%              Citibank

4 years            7.75%              Deutsche Bank

1.5 years.        7.50%              Citibank, Deutsche Bank

2 years            7.50%              Citibank, Deutsche Bank

5 years            7.25%              Standard Chartered Bank

Short-Term Deposits

9 months         8.25%              Standard Chartered Bank

90 days           8.00%              HSBC

6 months         7.75%              Citibank

120 days         7.75%              Standard Chartered Bank

60 days           7.50%              Deutsche Bank

30 days           7.00%              Deutsche Bank

*Interest rates are subject to change.

How to choose a good fixed deposit scheme

Although Bank FDs make great fixed-income options, they are not as simplistic as they appear. When choosing an FD scheme, don’t look at interest rates in isolation but consider the following as well:

➢     What is the minimum amount required as initial investment? The initial investment required to open an FD account varies from bank to bank. For e.g. HDFC Bank stipulates a minimum amount of Rs.10,000 to open a regular FD account.

➢     What is the penalty levied on premature withdrawals? Banks charge a penalty for breaking an FD i.e making premature withdrawals or closing account before maturity. Penalties are applied to the interest rate and can go up to 2% in some cases. This can greatly compromise expected returns. E.g. a penalty of 1% on a deposit featuring interest rates at 6% will earn account-holders net returns of 5% in case of early closure of the account.

➢     How well does the bank service its customers? How a bank services its customers is important. Some banks delay crediting interest to depositors’ accounts while still others require constant follow-ups for renewals and issuing of fixed deposit receipts. Foreign and private banks are generally known for their promptness in providing information and processing transactions.

➢     Does the bank provide loans against FDs? Most banks grant loans against fixed deposits. These loans feature interest rates which are lower than those of most personal loans. The interest payable on the loan is usually set off against the interest earned on the FD. This is an advantage for those who require funds but do not wish to break their FDs and lose out on returns.

➢     Does the FD feature cumulative options? Under cumulative options, interest earned, instead of being credited to the account-holder, is compounded or reinvested at regular intervals. This maximises returns as interest earned is added to the principal for subsequent interest calculations.

The longer the tenure and more frequent the compounding, the higher the returns under cumulative options. Some banks offer quarterly compounding while some offer half-yearly compounding.

➢     Does the bank offer special senior citizen / employee rates? Most banks offer special FD rates for senior citizens and bank employees. Senior citizens are generally offered an extra 0.25% - 0.50% on rates offered to regular customers while employees generally earn 1% over standard rates. Retired persons can create a regular income stream by having interest earned on deposits credited to their account.

➢     What is the effective rate of return post taxes? Interest earned has to be declared as part of an account-holder’s overall income and is taxable according to the appropriate tax slab. While determining the desired rate of return, taxes should be considered. For e.g. If a depositor earns 9% on a deposit and is liable to pay tax at the rate of 30%, his/her effective rate of interest is 6.3%. This information is useful when comparing schemes to choose the one that provides optimum returns.

(For interest earned on fixed deposits over Rs.5,000 in a financial year, tax will be deducted at source, by the bank @ 10%.)

Outlook for bank fixed deposits in 2015

Given the changing economic scenario in India, the question on most investors’ minds is - ‘Is it a good time to invest in bank FDs?’

Rate cuts are already signalling a downward trend in the interest rate cycle and banks are expected to bring down interest rates on fixed deposits in the coming quarters. Some banks have already acted on this by reducing rates between 25 to 50 bps over the last month.

In view of these developments, long-term FDs appear to be the best option for those who can trade-off on liquidity and lock-in funds for a period of 3 to 5 years at current rates, before returns are lowered in line with market changes. Investing in tax-saving FDs, which have a minimum lock-in period of 5 years will also reap long-term benefits at current rates.

This will prove most beneficial to those in the lower tax brackets or those whose incomes fall below the tax exemption limits. It is also an advantageous prospect for senior citizens / retirees who can lock-in interest income at current high rates for the next few years.