Tata Motors launch FD scheme offers 10 per cent on deposit

Tata Motors Ltd maker of Indica and Indigo cars has launched a fixed deposit scheme. The company announced the scheme through a newspaper advertisement on Monday.

A company has launched the scheme in order to raise money from the public at a time of serious liquidity crunch credit seizure and as the banks is not willing to lend the money.

Tata Motors will be offering 10 per cent for a one year deposit with senior citizens getting half a percent more.

Company has taken this move when it is fighting a mounting battle to raise cash to pay down the debt raised during the acquisition of Jaquar Land Rover last year.

Tata Motors stocks climbed down to near its 52-week low of Rs 122. At 1:45 pm it was trading at Rs 134.25, down 1.54 per cent.

Bankers mopping up funds on FDs

Banks are offering attractive deposit rates to sell fixed deposit (FD) schemes like never before to wipe out funds from depositors. They are advertising attractive deposit rates through lining up road shows and door-to-door campaigns and on the other hand also trying to stay away from high-cost bulk deposits. Some of the banks are also offering incentives to their employees to persuade depositors.

Consequently bankers are saying they expect to wipe up more than 20 per cent of what they usually do during November. This month most of the banks have increased the deposit-mobilization drive as most of them have announced that they will be reducing interest rates from December. Currently, most public sector banks have announced high interest rates up to 10.50 per cent, and 11 per cent for senior citizens, on one- to three-year deposits.

“It is a matter of raising resources. We have decided to reduce interest rate on bulk deposits, which (their share in the total portfolio) are expected to come down. Most banks have decided that they will not pay over 9.5 per cent on bulk deposits,” said United Bank of India Chairman and Managing Director S C Gupta. “We will take a call if we will reduce rate of interest on retail term deposits by December so that our retail customers are not affected,” he added.

The United bank has launched a special campaign called Rainbow; under this scheme its branches are offering reward points for gathering retail deposits. It has set a target of acquiring Rs 5,000 crore of retail-term deposit by March 2009.

In the previous month Allahabad Bank had introduced Diwali Bonanza scheme for a limited period, under which it offered 10.5 per cent on term deposits of one to three years. Though the bank will be reducing rates but the scheme is still on.

“When all our competitors were offering high interest rates, it was very difficult for us to attract retail customers. So, we were a bit late in increasing interest rates. We tried to motivate our employees to get more retail customers and started campaigns for mobilizing saving accounts, term deposits and recovery,” said a senior executive at Allahabad Bank.

“During November, there is more than a normal increase in the number of fixed deposits. Next month, we will take a view on when to reduce deposit rates,” said a senior UCO Bank executive.

“People are hurrying to park funds as they expect a rate cut in December. Also, due to the financial turmoil, many people are transferring funds from private banks to public sector banks. As a result, there has been a very significant increase in the number of FDs,” a Syndicate Bank executive said.

ON A ROLL Top ten public sector banks
(Rs crore)	Deposits		Advances
	2007	2008	2007	2008
State Bank of India	4,35,521.09	5,37,403.94	3,37,336.49	4,16,768.20
Punjab National Bank	1,39,859.67	1,66,457.23	96,596.52	1,19,501.57
Canara Bank	1,42,381.45	1,54,072.42	98,505.69	1,07,238.04
Bank of Baroda	1,24,915.98	1,52,034.13	83,620.87	1,06,701.32
Bank of India	1,19,881.74	1,50,011.98	85,115.89	1,13,476.33
Central Bank of India	82,776.28	1,10,319.67	51,795.47	72,997.43
Union Bank of India	85,180.22	1,03,858.65	62,386.43	74,348.29
Syndicate Bank	78,633.57	95,170.80	51,670.44	64,051.01
Indian Overseas Bank	68,740.41	84,325.58	47,060.29	60,423.84
Uco Bank	64,860.01	79,908.94	46,988.91	55,081.89

The effect of special high deposit rates can be seen clearly. Union Bank of India has collected Rs 5,000 crore through its 900-day deposit scheme, by offering 10.5 per cent interest. “We closed the scheme recently, but our retail deposits have grown by over 25 per cent during the present financial year compared with 10-15 per cent in the corresponding period last year,” said S Govindan, general manager (personal Banking and operations), Union Bank of India. Till now in 2008-09, the bank has acquired Rs 11,000 crore through retail deposits.

Likewise Bank of India’s campaign from October till the end of December is focused on on retail deposits of up to Rs 15 lakh has been able to collect around Rs 3,000 crore so far. “We hope to add another Rs 500 crore over the next one month,” said Bank of India Executive Director B A Prabhakar.

Debt relief options to achieve a debt free life:

Increasing numbers of debtors are having serious monetary issues. Your debts will only minimize once you start paying them off but financial relief can be achieved overnight. With the state of today's economy, consumer debt is increasing in number. There are many who are looking for debt relief.

What is debt relief?

Debt relief is kind of assistance provided to an individual who is in debt. It provides liberation from debts. Any one of us can fall into a debt trap. Simply consolidating a handful of debts will not relieve you from this burden. The initial step of getting out of debt is to work out on your pending bills. If you have no idea about the extent of your debt, you will not be able to do anything about it. So, it is advisable to go for debt relief programs which have proved to be beneficial for many who have financial issues.

Options for debt relief:

The most common options of debt relief are debt consolidation, debt management, and debt settlement.

Debt consolidation: Through debt consolidation you can consolidate your debts into one single payment. This is helps you to pay your multiple debts through a single payment. The debt consolidations programs are widely adopted by individuals to end their debt problems. Here a debt consolidation firm will contact your creditors and negotiate with them on your behalf. They will reduce the interest rates for you and club all your outstanding payments into one affordable amount.

Debt management: Debt management is seeking help from experts in finding a proper debt solution. Basically there are two types of debt management programs. One is secured debt management programs and the other one is unsecured debt management programs.

Debt settlement: It is one of the popular solutions when you are under the burden of heavy debt. The other option is to just file for bankruptcy. Among these two, debt settlement is preferred as it has a relatively less impact on your credit report.

You can start to plan your debt relief right from today, but do not expect things to change overnight. You can try to build a rapport with your creditors and keep them informed so that they will be able to help you with lower interest rates or monthly payments. They may even help you to structure a payment plan which may lessen the chance of adverse credit ratings. The option can be to take help from a credit counseling company. They may be charge you a small fee or no fee at all. They can help you to organize your budget and minimize your spending for some debt relief. They may also contact your creditors and work out repayment plan for you. Also never forget your bank as they can help you to give you an equity loan in your home’s value. This you can use to pay your debts.

All these options may vary from person to person. Try to find a debt relief plan which will suit you. All you need to do is lessen your credit limits and try to improve your credit scores. The debt relief solutions only guide you to manage your finances.

Banks started pulling off high-return FD schemes

Interest rates have started suspending therefore banks have also started taking off the special deposit schemes under which they were offering higher interest rates. For instance Union Bank of India (UBI) recently has taken a decision to withdraw its 900-day deposit scheme with 10.5% interest rate from next week. Other banks to follow suit soon.

UCO Bank sources said that banks deposit scheme under which it is offering 10.5% on exact one-year deposits will be only for the festive season. UBI on the other hand has withdrawn its one-year deposit from November 1 even though it has raised deposit rates.

Banks have introduced ‘special’ schemes under which they were giving high interest rates than the rates attached on regular deposits on either side of the special term.

From all the concerned quarters the indications are coming that the interest rates on deposits in general will slip down from their current high levels. Therefore if you are still looking for a safe option for investing your liquid cash then this is probably the best time to invest your funds with bank fixed deposits.

Hence you might not get interest rates which are as good as 10.5% per annum on long deposits. “We will reduce deposit rates with effect from November 9. We have decided to withdraw the 900-day scheme on which we offer 10.5% rate per annum.

There will be no change in deposit rates for other time buckets,” UBI chairman and managing director MV Nair said. According to him, UBI has collected Rs 4,000 crore through this single-deposit instrument during the past one month.

For the moment, State Bank of India is yet to take a decision on deposit rates. Other top banks, in principle, have agreed to reduce their rates. They have gone back to their drawing boards to finalize the extent of the reduction and the timings for the same.

Some of the banks like Allahabad Bank, Bank of India, UBI, and UCO Bank recently raised their deposit rates. But they, too, have started considering realigning their plans with the market.

UCO Bank CMD SK Goel said: “We will take a decision on rates on November 10. By then, the real impact of Reserve Bank of India’s liquidity infusion doses will be clear.”

UBI executive director TM Bhasin said: “After RBI’s signal to lower interest rates in general, our deposit rates have to be corrected now.” It has reduced its lending rates to all advances linked with prime lending rate. The bank added: “More reductions in lending rates will be considered commensuration with decrease in deposit rate in the next week.”

Bank directed to pay interest on prematurely withdrawn FD

The District Consumer Forum in its judgment said that it is incumbent on the bank to pay interest on a deposit that has been prematurely withdrawn with an interest rate less than one per cent of the fixed rate The forum directed Canara Bank to pay interest on a fixed deposit of Rs 5 lakh.

Bank refused to pay interest on the amount withdrawn within six months while the fixed deposit was made for a period of one year.

In its order forum asserted that it is a clear a case of insufficiency on the part of the bank to refuse payment of interest. Bank has been asked to pay an interest of nine per cent on the 9 per cent (10 per cent -1per cent = 9 per cent) on the pre-mature deposit for the period it remained with them.

The bank has also been asked to pay Rs 5,500 as costs of litigation.

The complaint was filed by Ashwini Luthra, a resident of Sector 15, said after his retirement he received various benefits and deposited the amount in his bank account at the Canara Bank branch in Bhopal.

As he was to settle in Chandigarh after retirement, therefore he requested the bank to transfer these funds to his account at the Sector 17, Chandigarh branch of Canara bank.

For this, Bank asked Ashwini to keep the aforesaid money in the fixed deposit as this would give him credit.

But the complainant then did not transfer the funds. In April 2007, when bank increased the rate of interest for senior citizens from 8 per cent to 9.5 per cent, he requested the branch in Bhopal to encash the FDs and transfers the funds to the Chandigarh branch, so that he could avail a higher rate of interest.

He told that once again he was asked not to transfer the funds as his old FDs will be cancelled and converted to high rate of interest. Though this was done in April 2007, but in the third week of October 2007, the complainant needed the funds and requested the bank branch to encash one of the FDs worth Rs 5,00,000.

Then bank advised him that the FDR had to be signed by both the account holders as this was a case of “premature withdrawal”.

Hence he completed all the formalities and, the amount was credited to his account, at this he found that the interest due for this period of six months was not credited in the account.

When he inquired from the bank, he was told that since the FDR was in a scheme, which had a lock period of one year, the premature withdrawal did not entitle him to any interest.

The complainant alleged that bank had never informed this aspect either at the time of conversion of FDs at the higher rate of interest in April 2007 or when the complainant asked for premature withdrawal. Thereafter, when in spite of prolonged correspondence with the bank, nothing positive could come out, so he moved the consumer forum.

On the other hand Canara Bank, in its reply, stated that immediately after retirement the complainant did not fall within the senior citizen category to claim additional interest.

It was stated that as soon as the complainant requested the Bhopal branch immediately transferred the fixed deposits to Chandigarh.

They informed that as per the scheme, the complainant was informed that premature closure is not permissible under the terms of the deposit, therefore, the deposit be continued till its maturity.

The bank also said that they had informed the complainant in case of premature closure of the deposit, no interest would be payable for the period.

The forum on investigation found that the bank had floated the scheme for a limited period only, but at the same time bank could not put forward enough proof that for any premature withdrawal no interest is paid.

“The complainant did not receive any information from the bank that he will not be entitled to interest if he made a premature withdrawal of his FD amount. In fact, the complainant was led into a bonafide belief that he will be paid interest similarly in this deposit scheme also as used to be made in other FDR deposit schemes. However, when the complainant lodged his protest with the higher authorities, he was told that the interest was payable to him for the full amount only on the maturity date. For premature withdrawal no interest was payable,” the forum said.

Understanding the term ‘Cash Reserve Ratio’

In India the banks need to keep only a fraction of their deposit liabilities in the form of liquid cash with the central bank for ensuring safety and liquidity of deposits therefore the present banking system is called a “fractional reserve banking system”.

The Cash Reserve Ratio (CRR) means to the liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. For instance if the CRR is 10% then a bank with net demand and time deposits of Rs 1,00,000 will be required to deposit Rs 10,000 with the RBI as liquid cash.

In 1950 CRR was introduced mainly as a measure to ensure safety and liquidity of bank deposits, but over the years it being used an important and effective tool for directly regulating the lending capacity of banks and to keep control on the money supply in the economy.

When the RBI sees that the money supply is increasing which in turn is creating an upward pressure on inflation, the RBI increases the CRR thus reducing the deposits available with banks to plan loans and hence reducing the money supply and inflation.

The RBI can impose penal interest rates on the banks in respect of their discrepancy in the prescribed CRR. The Master Circular on maintenance of statutory reserves updated up to June 2008, states that in case of default in maintenance of CRR requirement on daily basis, which is currently 70 per cent of the total CRR requirement, then the penal interest will be recovered at the rate of three 3% per annum which is above the bank rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day.

In case the shortfall continues on the next succeeding days, penalty interest rate will be recovered at a rate of 5% per annum above the bank rate. In fact if the default persists on a regular basis then RBI can even cancel the bank’s license or force it to merge with a larger bank.

The CRR is valid for all scheduled banks including the scheduled cooperative banks and the Regional Rural Banks (RRBs). Currently the level of CRR is 6.5%, this is fixed by the central bank of India. Earlier, there was a level of 3% and ceiling of 20% on the CRR, but since 2006 RBI has removed the minimum or maximum levels of CRR.

Currently RBI is not paying any interest to the banks on the CRR deposits. Up to 1962, a separate CRR was fixed in respect of demand and time liabilities, eventually after 1962 the separate CRRs were merged and one CRR was introduced for both demand and time deposits of banks with RBI.

Dena bank hiked rates on deposits and offer 10.25% on 700-day term deposit

Dena Bank a public sector lender on Monday announced interest rate of 10.25 per cent per annum on domestic term deposits of 700 days. A bank press release said senior citizens will be offered interest of 10.75 per cent per annum for the same period.

According to press release bank will also be revising interest rates on NRE rupee term deposits on maturity period of one year and above but less than two years where the new interest rate will be 4.46 per cent as against the earlier 3.17 per cent.

The release also stated that bank has also raised its interest rates on FCNR (B)/RFC term deposits in dollar (USD), Pound (GBP), Euro, Canadian (CAD) and Australian (AUD) dollars for the maturity period of one year and above but less than two years.

Thus the increased interest rate on dollar in this tenure will be 3.71 per cent as against the earlier 2.96 per cent, on GBP it will be 6.27 per cent as against the earlier 5.77 per cent whereas on the Euro it will be 5.24 per cent as against 5.08 per cent.

On CAD, the bank has fixed the at 4.55 per cent as against the earlier 3.42 per cent and on AUD at 7.55 per cent as against the earlier 7.22 per cent.

SBI introduce 1000-days deposit scheme

State Bank of India (SBI), from October 1 will be increasing its deposit rates in certain maturities.

According to SBI press release the bank has introduced a 1000-days fixed deposits scheme in which bank is offering 10.5 per cent interest to depositors. It said under this scheme the senior citizens will get a higher 11 per cent interest in the new deposit-scheme.

The bank sources added, in addition, an additional 0.25 per cent rate above the card rate is being offered on a single term deposit of Rs 15 lakh and above, the tenure will be of 181 days to less than 2 years, the bank said.

The bank said likewise, 0.1 per cent above the card rate will be given on a single term deposit of Rs 15 lakh and above for other periods of less than 181 days and the periods of 2 years and above.

FDs, FMPs can be safe investments in troubled times

Since January 08 the share market is very unstable therefore the financial expert’s advice to invest in bank’s fixed deposits (FDs) and fixed maturity plans of mutual funds (FMPs). FDs and FMPs provide cushion and relatively risk free returns. According to financial planners the fixed deposits can have dominant importance to senior citizens or those with limited risk factor.

In the case of debt possibilities such as fixed deposits, at present most public sector and private sector banks are offering 10 per cent for a 1-year fixed deposit, and 10.5 per cent in the case of senior citizens. And for a fixed deposit of say Rs 50, 000, the entire interest of Rs 5, 000 can be taken without any TDS, in case the depositor has a gross income of around Rs 1.5 lakh per annum. The FD holder would be required to submit a tax declaration form 15 to the bank, to get his interest without TDS.

But, investors coming under the higher tax brackets like 20 or 30 per cent, possibly will see their returns come down to as low as 7 per cent. Certainly, with inflation currently close to 12.5 per cent levels, FD option might not be of help for an investor to keep up with the rising cost of inflation.

“The key aspect here is protection of an investor's savings, but the returns are modest,” said Amar Pandit, director, My Financial Advisor.

Then in debt investment avenue fixed maturity plans launched by mutual funds is in trends. A majority of these FMPs do investments solely in debt instruments, in accordance to the tenure of the plan. According to financial planners FMPs are relevant especially for the investors in the high tax bracket because funds give returns to their investors of FMPs in the form of dividends, which are subject to dividend distribution tax of 14 per cent. Thus, for investors in the higher tax bracket of 30 per cent, their net return via FMP is close to 8.6 per cent levels, which is much better than a plain vanilla fixed deposit.

But, for the investors with a longer time prospects and can face risk factors, financial planners indicate that it can be the right time to assess opportunities in the stock market or gold.

Since January 08 there has been 37 per cent dip in Sensex from its peak therefore this is the right time to avail such investment opportunities. As for the Sensex at 13,120 levels, it is currently trading at 16.5 times trailing P/E, well below the peak of 28.5 times in early January.

“Equities are the best option to grow one savings in the long term," said financial planner Kartik Jhaveri of Transcend Consulting.

To avail opportunities in this space, investors can consider investing directly in the stock market or could leverage the professional investment services offered via mutual fund schemes.

Jhaveri says that if one is investing directly, one can consider large cap stocks in sectors which offer growth opportunities over the next few years like telecom, healthcare or engineering sector. Investors can also take up SIP schemes offered by mutual funds, which start at just Rs 1000 per month, typically for a three year period.

Then investing in gold is another popular area in today's uncertain times. But returns from gold wholly depend upon the price at which one buys. For instance in Thursday's trade, domestic gold prices posted their biggest intra-day rise in 27 years to Rs 12,915 levels per 10 gram.

However, despite the instability in gold prices, it is considered a sound investment avenue during these uncertain times. For instance, gold ETFs have given a return of nearly 26 per cent since the beginning of calendar year 2008, this is the highest for any investment category, whether debt or equity linked funds.

Banks offer high interest rates on 400-day fixed deposits

The inflation has gone high but the interest rates on fixed deposits have also increased. This is the right time and would be the right decision to make investments in the fixed deposits as the deposit rates are currently ranging from 9.5% to 10.50%. The fixed deposits with the tenure of 400 days will get the maximum benefits.

DNA carried out the survey and found out that five of 20 banks - ABN AMRO Bank, Bank of Baroda, Bank of India, Development Credit Bank and Indus Ind Bank — are offering higher interest rates on 400-day fixed deposits in comparison to other maturities.

The ABN AMRO Bank is offering an interest rate of 10.25%; while the other four banks are giving an interest of 10% on deposits fixed for 400 days. But if we compare it with other maturities having almost a similar tenure, offer on 400-day deposits tand out to be lower.

For instance, ABN Amro Bank is giving an interest of 9.75% on a fixed deposit of 399 days and 9.5% on a fixed deposit of 401 days. Thus this offer nearly matches it.

ICICI Bank is giving an interest of 10% on its 390-day fixed deposits while the Union Bank of India is offering 10% on deposits maturing in 444 days. While HDFC bank the second largest private sector bank in the country, is giving 10% interest on a maturity of 1 year 15 days to 1 year 16 days. Kotak Mahindra Bank is offering 10.12% on the maturity of 390 days.

There are several other banks that are not favoring any specific maturities and are offering higher interest rates on all fixed deposits. Country’s largest bank, State Bank of India, is offering an interest rate of 10% on a maturity of about one year and less than two years.

Banks are not keen to sell floating rate deposits

Bank of India the state-owned bank is offering 0.25% extra interest on long-term deposits. The depositors who are willing to put money in the bank’s floating rate deposits can avail this offer. The bank will reset the rate of such deposits, in the beginning of each quarter, linked to the bank’s term deposits.

Bank of India is one among the few commercial banks who are offering floating deposits but not all of them are offering term deposit rates as a benchmark for such deposits. Some banks are using profits on government securities, mainly 10-year bonds and 364-day Treasury bill, as the benchmark rates for such deposits.

The floating rate goes up with rise in interest rate therefore there aren’t too many takers of such deposits. On the other hand the banks are also not selling the product aggressively.

Banks are not garnering such deposits because they will have to pay higher interest rates in the future if the benchmark rate goes up. The depositors too are not excited about this product, as are for term deposits, because floating deposits has a freeze and if the depositors want to redeem the deposits before maturity, they will have to pay penalty by way of a sharp reduction in returns. In addition to this there is uncertainty of return on such deposits if there is any change in floating deposit rates.

“The product is yet to pick up in India. Retail depositors want a clear idea of what they are getting when their deposits mature. Floating rate deposits do not give that certainty,” said B. Sambamurthy, chairman and managing director of Corporation Bank.

The Reserve Bank of India, or RBI, have given the approval for offering floating rate on deposits six years ago, in 2002, when some banks and financial institutions started redeeming deep-discount bonds which were floated in mid-1990s when interest rates have gone up.

The long-tenure bonds had a maturity period between 15 and 21 years, on it the bank offered 14-15% interest rates to consumers. To these bonds “call” and “put” options were attached which allowed both bond holders and lenders to redeem the bonds at regular intervals. At that time the “call” option was used in the beginning of the century by most of the lenders when the interest rates had dropped sharply, in order to cut the cost of deposits.

After going through this experience, banks are not ready to lock themselves in for long-term deposits therefore there very few banks offering fixed deposits beyond three years.

While the banking regulator wanted to solve the problem by giving the banks right to offer floating deposits and also by giving them flexibility for fixing the cost of such deposits. According to bankers, who do not wish to be named, the aim behind introducing the floating deposit rates was to protect banks from long-term high-cost liabilities rather than giving customers a new instrument.

Moreover, even the customers have shown interest in this product even though it is mentioned in most banks’ product portfolio.

“The timing of the product launch was wrong. It got a beating that time and is yet to recover,” said a senior public sector banker who does not wish to be named. In mid-2002, the profit on benchmark 10-year paper was revolving around 7.65% but by the year end it closed at 6.08%. In October 2003 it further dropped below 5%. When the viewpoint on interest rates is clear, people do not wish to go for floating deposits.

Although in a rising interest rate conditions floating rate deposits seems to be attractive but the profits on the 10-year government paper may be anything but it is stable. In the beginning of the calendar year 2008 the profit on the benchmark 10-year paper, was 7.76% which has now dropped to 9% and had touched 9.5% in July.

“The floating rate deposit scheme did not evoke much response as expected because customers want certainty of a steady cash flow,” said an official of India’s oldest mortgage lender, Housing Development Finance Corp. Ltd, one among the few institutions that launched a floating rate deposit scheme in early 2004. “A steady cash flow is the key reason why people go for fixed deposits.”

Some of the banks have introduced flexi-deposit rate schemes so that floating deposit rates look attractive. For instance Exim Bank of India is offering a deposit scheme under which customers will get the benefit of rising interest rates, but will not get affected when the rates come down. This year, three-year and five-year floating deposits have been launched which are benchmarked to give profits in comparison to maturity government bonds.

“Traditionally, consumers want to crystallize income into a steady cash flow and generally won’t like to take risk of a floating rate system.” said Shankarnarayan R. Rao, executive director of Exim Bank.

“We welcome this product as it gives a better hedge and helps us tackle asset-liability mismatches. But for a customer, who wants to bet on uncertainties, investment in equities is a more attractive option,” said a general manager with a large public sector bank who does not wish to be named.

However banks are quite hostile while selling floating rate loans. On more than 70% of home loans banks have given floating rate loans and interest rates changes with the change in their benchmark lending rate.

Canara bank revised its term deposit rates

Canara Bank has increased its term deposit interest rates ranging from 25 to 50 basis points for different tenors with effect from Tuesday, August 19.

The bank sources informed the fixed deposits having tenors of one year and up to 499 days will get an interest of 9.75%, up by 25 basis points.

For the deposits for more than 500 days, rate has been raised by 50 basis points, for tenor up to two years rate is up to 10%, while for the above two years and less than three years tenor the rates have been revised by 25 basis points to 9.75% from 9.50%.

The rates for tenors of three years to less than five years and above five years have been revised at 9.50%, an increase of 50 basis points. The bank has also revised interest rates for senior citizens; it will be offering 50 basis points. If you're looking to invest in fixed deposit just make sure to check Canara bank fixed deposit as they are offering some outstanding schemes for senior citizens.

Corporation Bank launched 'CorpGain' special deposit scheme

Corporation Bank launched 'CorpGain' a special deposit scheme. This new scheme is for a limited period i.e., for a fixed period of 330 days. The Corporation Bank today launched a special deposit scheme for a fixed period of 330 days that will earn an interest rate of 10 per cent.

The interest rate offered is 10 per cent. Bank sources informed that the interest rate will be applicable for a minimum deposit of Rs 25,000 and less than Rs 15 lakh only. It added the senior citizens will be offered 0.5 per cent more than the normal rate.

Banks giving 10% interest rate on special FDs

Banks are raising deposits (FDs) rates; therefore investors looking for option for investment of their hard earned money can go for FDs. Since January the stock market is continuously unstable, at present it is not safe to invest in stock market.

It is for the first time in 10 years that banks are giving 10% interest rate on special FDs.

In July the Reserve Bank of India raised interest rates which means banks are in desperate need of funds, which has forced them to offer extremely attractive interest rates on fixed deposits.

Few days back State Bank of India, the largest bank in the country, has hiked fixed deposit rates. Bank has announced a 0.25-0.75% increase in fixed deposit rates effective Saturday. You may check SBI FD Rates here the latest interest rates chart.

Therefore SBI will now be giving a 10% return on a one-year fixed deposit, up from 9.50% earlier.

ICICI Bank and HDFC Bank the two big private sector banks have already announced hikes in deposit rates after the RBI hiked rates on July 29.

ICICI Bank is offering 10% interest for a special tenure of 390 days. HDFC Bank offers 10% on deposits kept for 1 year, 15 days.

Senior citizens will get 0.50% additional interest.

Fixed Deposits favorite among investors

After April the return levels on fixed deposits have increased up to 15-20%.

Banks have raised interest rates of fixed deposits therefore individuals have started investing money in fixed deposits (FDs), as the earnings have gone up by 15-20 %.

Hindustan Unilever employee Sachin Shah, 28, has found investing in FDs more profitable therefore in the last five months he has invested Rs 5 lakh in FDs. On new deposits he will earn around 9.5 per cent since he has invested for a one-two year term, compared to 8.25-8.75 per cent he will earn on the Rs 8 lakh he had deposited earlier.

Annually he will earn around Rs 50,000 on Rs 5 lakh deposit as compared to Rs 42,000 which he would have earned till April.

In July the central bank has tightened monetary policy by increasing repo rates, or the rate at which it lends, and cash reserve ratio, or the proportion of deposits that banks have to set aside, since then banks have been increasing lending rates by up to 100 basis points, but many banks have not increased deposit rates by the same scale.

For instance, State Bank of India has raised its prime lending rate by 100 basis points, but have increased deposit rates only by 25-75 basis points.

Many big banks including Axis Bank, Bank of Baroda, Union Bank of India and mortgage player HDFC, have not changed deposit rates to ensure better net interest margin. These banks have not given any indication regarding the increase in deposit rates.

“Deposit rates are market-driven and more dynamic. We can change it later as well,” said a bank chief.

While Partho Mukherjee, Axis Bank’s treasury head, said, “To be in competition, banks need to keep a close watch on deposit rates. Our assets and liability committee (Alco) will first see the impact of the recent rise in deposit rates by other banks. Before a further upward revision in interest rates on our FDs, we will assess the reaction of investors.”

The instability in the stock market has made FDs favorite for investments.

“I stopped investing in equities after January when the markets started falling. Moreover, FDs are very attractive. Now, I invest 40-50 per cent of my savings in FDs, and mostly in maturities of 15 months, because the best interest rates are offered on these tenures,” said Shah.

New-age Yes Bank increased fixed deposit rates

Yes Bank a new-age private sector lender has increased its fixed deposit interest rate by 0.25 for time period of one year and one day up to 18 months to 10 per cent from the earlier 9.75 per cent

According to bank press release senior citizens will now earn a return of 10.50 per cent as against the existing 10.25 per cent. The revised rates have come in to effect from August 1.

Bank has also hiked its interest rates on fixed deposits for time period ranging from six months 1 day to 2 years.

Yes Bank Managing Director and CEO Rana Kapoor said, "The bank has been observing keen interest among customers to invest in deposit products and we believe this trend will sustain given the safety, security, liquidity and flexibility provided under the bank's deposit program".

Bank has also hiked its benchmark prime lending rate (BPLR) by 0.50 per cent to 17 per cent and have come into effect from August 1.

Use FD funds to prepay floating loans

RBI tightened monetary policy by increasing repo rate by 50 bps to 9%. The cash reserve ratio has been increased by 25 bps to 9%. This move of RBI has pushed up interest rates across the board which is haunting the borrowers.

Therefore in case home loan rates rise, it is going to create a big hollow in the borrowers’ disposable income, which is already hit by inflation. While bond profits on 10-year government bonds rose to a high of 9.40%. In spite of rise in profits bank deposits to show negative returns after regulating for inflation.

In such a situation it would not be advisable to keep the money in bank deposits, when you have to pay high interest rate on a housing loan.

For instance you have taken a loan for your new home two years ago. As of now, you have a loan outstanding of Rs 20, 00,000 and the prevailing rate of interest is 12.25%, which is payable over the 20-year term of the loan. The EMI works out to Rs 22,371.

You also have an FD which has got matured and you will have a cashflow of Rs 1, 00, 000, keeping aside the accumulated interest. In case you have made an FD for one year at 9.75% you will make around Rs 10,000 one year.

In spite the higher rate of interest it is advisable to prepay your loan. In case bank do not charge penalty for early payment then prepayment can beat off almost 41 EMIs at one go, and this will bring down the loan payment tenure to 16 years and 7 months from 20 years. Like this you will save Rs 8,18,322

In the initial years of your loan, the EMI has higher interest component. Even though you pay 1% prepayment penalty, you will be paying off around 38 EMIs. That means, the tenure is reduced to 16 years 10 months and you do not pay Rs 7,59,922 in interest.

Now if you choose to use FD earning around Rs 10,000 at the end of one year, you will be paying Rs 2,43,637. Hence prepayment is a clear winner. Now the question arise does it make sense, to opt for a premature withdrawal of the fixed deposit with a bank? Yes, by all means.

The savings in interest payable are far more than the opportunity lost on FD interest. But you have to be quick in taking decision, because if your bank is faster than you in increasing the rate of interest, the benefits you can get out of prepayment will be moderate.

In case, when the bank increases the rate of interest to 12.75%, then what impact it has on your Rs 20,00,000 loan. For 20 years, the new EMI will work out at Rs 23,076 and if you chose to keep the amount of EMI constant at Rs 22,371, the tenure will extend to 24 years.

Also, if you plan to prepay after the rate hike, the benefit will be moderate due to high interest rates.

In fact, a segment of borrowers, who have raised fixed-rate housing loans when rates were low, can be in better off not prepaying. This segment includes those who are getting a higher rate on FDs than the fixed rate that they pay on home loans.

Another inducement not to prepay the loan will be to enjoy the deduction to maximum possible (Rs 1, 50,000). In such cases one must be flexible and keep a check on the loan outstanding and the interest component. Traditional knowledge, though, recommends a debt-free status.

BoR hiked interest rates on FDs from today

On Monday private sector bank, Bank of Rajasthan hiked the interest rates on fixed deposits on certain maturities.

According to Bank of Rajasthan in a press release said a new 500- day deposit scheme has been introduced on which bank is giving 10.25 per cent interest to depositors and is one of the highest profit in the market.

The bank also introduced two new maturities. Deposits having tenure of 12 months to 16 months 13 days, customers would get an interest rate of 9.75 per cent.

FDs having a maturity of 16 months to 15 days to 36 months, there rates have been revised to 9.5 per cent.

In addition to this bank has also increased the rate of interest for deposits having a time slab of three years and above from 8.75 per cent to 9 per cent.

The revised rates will be effective from today.

Rise in fixed deposit rates draws investors

Since the beginning 2008 stock market has seen down fall and inflation rising. With rise in inflation the interest rates on term deposits started showing negative interest. After the Reserve Bank of India move to raise short – term lending rates (repo rates) and mandatory bank deposits with the central bank (CRR) by 50 basis points each to check inflation banks have revised fixed deposit rates because of this the fixed deposits have become flavor of the month. Other wise the stock markets had an edge over fixed deposits, because of the booming stock indices.

Even the government's saving schemes, especially the post office saving schemes, was also having edge over the FDs. The reason behind the limelight of FDs includes the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. Another important factor has been the gradual increase in the interest rates on FDs.

The deposits have been brought on same level with the small savings schemes. Investments in term deposits offering a tax deduction have a lock in period of five years. According to the government notification no term deposit can be encashed before five years from the date of investment. The ceiling on investments is Rs 1 lakh for tax deduction. The interest earned on these deposits will attract tax either on an accrual basis or on receipt basis. If the deposit is made with a joint holder, the tax benefit is given to the first holder.

Under Section 80C the investors have been given the option of fixed deposits to complete their investments. In case of investments in National Savings Certificates (NSC) the return is eight percent and the tenure is six years. However, you can keep the NSCs as security for a loan. The accumulated interest is considered as a further investment and hence, it is also eligible for Section 80C benefits. These investments are totally secured in nature. They constitute a medium term investment opportunity. Although income earned in the form of accrued interest is taxable each year.

Whereas, an investment made in the Public Provident Fund (PPF) is for long-term investors. This investment is also totally secure. The interest earned on this investment is exempted from tax. The deposits are exempt from wealth tax. The rate of interest is not fixed for the entire duration of the investment, but is announced regularly. The interest rate is revised by the government at intervals. The interest rates can be changed in the middle of the investment period. Further, the investment is for a fixed period of 15 years.

The tax aspect needs to be factored in. The interest income from fixed deposits is fully taxable, without the benefit of any deduction in the hands of the receiver, which means that for all those who come under the highest tax bracket, the applicable rate will be 30 percent, plus cess.

Investors prefer fixed deposits only in case the interest rates are high enough. FDs still have a long way to compete with these other investment avenues available to investors. Investors have to take care of certain factors such as interest rates, returns, lock-in periods, liquidity and security, before taking an investment decision.

Banks in metros show good business in deposits and loans segments

As per the records of the Reserve Bank of India (RBI) the country’s top five centers located in Greater Mumbai, Delhi, Bangalore, Kolkata and Chennai have been doing good business when the country’s banking community is making hard efforts for getting business. The top five centers have accounted for 44.5% of bank deposits and 53.6% of bank lending at the end of 2007-08.

The reason behind trapping of a bigger slice of deposits pie in this year as compared to a year ago can be the down fall of equity market since the beginnings of 2008 other than banks’ aggressive marketing strategies in top business centers.

According to an economist with a leading private bank “when equity market investors, especially online traders offloaded their holdings, the money came directly to the bank coffers. So, the top business centers have seen such automatic growth in bank deposits. Investors have also preferred bank deposits to equities or equity-linked products.”

The results of top five cities bank deposits have been quite surprising which have crossed the average annual deposits growth by several levels. Aggregate deposits have grown by 26.4% to Rs 14.36 lakh crore in the five centers collectively over Rs 11.36 lakh crore a year ago. In 2007-08 the average national deposits growth has been 24.2% over the preceding fiscal. If we see the individual reports Greater Mumbai, Delhi and Kolkata have contributed more to the trend, recording higher-than-average growth. “The significant rise in corporate salaries in bigger cities is another reason behind the higher-than-average growth,” an industry analyst pointed out.

If we compare the credit growth, the top five cities accounted for 53.6% (Rs 12.84 lakh crore) of the gross bank credit of Rs 23.95 lakh crore at the end of 2007-08. As on March 31, 2007, the share was 53.8% (Rs 10.5 lakh crore) of the gross bank credit of Rs 19.5 lakh crore. Interestingly, bank lending grew more in Bangalore (26.3%) and Kolkata (23.2%) than national average (22.8%).

At these bigger centers there is large amount of deposits and loans in comparison to the smaller centers.
As per the data of the central bank the top 100 centers in terms of deposits, have gathered 69.7% of the total bank deposits as on March 31, 2008. Similarly the top 100 centers in terms of bank loans have accounted for 77.8% of total bank credit. While in March 2007, the corresponding share of top 100 centers in aggregate deposits and gross bank credit were 68.9% and 77.4% respectively.

While, as on March 31, 2008 the number of banked centers served by scheduled commercial banks, stood at 34,426. Out of these centers, 28,529 were single-office centers and 54 centers had 100 or more bank offices.

Bank deposits regain popularity after hike in interest rates

After the increase in inflation the fixed deposit rates have become negative. Fixed deposit was no more an attractive investment option. Recently banks hiked deposit rates after RBI hiked its rates, because of this fixed deposits position has become better.

Banks have increased interest rates on FDs for one year and above. But interest rate on time slab less than three years is now around 9.5–10 per cent which was around seven per cent six months ago. Over the past few months the equity market position has become highly volatile therefore investors are looking for stable options.

Most of the public sector banks are offering 9.5 per cent on one-year deposits. While the new generation bank IndusInd Bank has launched a scheme offering as high as 10 per cent returns for a 400-day deposit.

According to Mr Saumitra Sen, head of branch banking, IndusInd Bank, “Fixed deposits are a much safer asset class for retail investors, for a one year horizon, given that the Sensex is down.” Banker stated some of the existing depositors are opting for ‘premature renewal’ of their existing deposits at higher rates.

Corporation Bank is offering 9.6 per cent on a 400-day deposit from July 8, and this offer is for a limited period. The minimum deposit amount is Rs 25,000 and maximum is Rs 15 lakh. According to a senior bank official on less than 10 days, the bank has earned around Rs 500 crore.

The official informed, “Given the high inflation, the rates may not be very good, but in the current circumstances, they are better than equity or mutual funds. We may extend the time period for the scheme, because I don’t envisage rates to come down in the near future.”

Another PSU bank Union Bank of India has raised Rs 6,000 crore from the 9 per cent 400-day deposit scheme. Bank launched scheme on April 10 till the first week of July, and currently the scheme has been discontinued. As per the revised rates the bank is offering 9.5 per cent for a deposit of over one year.

Bankers plans to hike lending rates with inflation touching 11.05%

The wholesale price index (inflation) has touched 11.05% for the week ended June 7-highest in 13 years and earlier the Reserve Bank of India in order to control inflation had hiked repo rate following this bankers are planning to increase both lending and deposit rates in the next one month. Another hike in interest rates by the central bank looks on the cards.

The RBI will be holding its quarterly policy review on July 29, after this bankers are expecting a hike in repo rate (at which RBI lends money to other banks) or the cash reserve ratio (the amount banks have to park with the central bank) by 0.25-0.50 percentage points again.

Although most bankers have refused to commit on possible rate hikes, but on seeing the recent trends in the banking sector there are indications of increase in interest rates.

The smaller banks like Jammu & Kashmir Bank and Yes Bank, have already increase PLR rates now the larger have also started feeling the pinch of the RBI's rate hikes.

In fact, HDFC Bank, the third-biggest bank by market value, has raised its main lending rate by 25 basis points to 15.25% effective from June 18. The bank has also increased its deposit rates by 25 bps.

"Our cost of funds has gone up by 50 basis points in the last one year," an official said, explaining the rational behind the lending hike.

HDFC Bank stands at the fourth place who have hiked interest rates after the Jammu & Kashmir Bank upped its main lending rate by whopping 100 basis points (1%) to 14% last week and Yes Bank's 50 basis points hike to 16% on Monday.

Yes Bank has hiked its rates for one year to 18 months' deposits by 50 basis points to 9.50%. Kolkata-based United Bank of India (UBI) hiked deposit rates by 25 to 75 basis points.

Increase in inflation at 11.05% means that investors are losing money on deposits. The average rate on one-year fixed deposits is 8.5%, which means a loss of 2.45% for depositors (11.05 - 8.5).

Meanwhile not all banks are ready to hike fixed deposit rates. V Santhanaraman, executive director of Bank of Baroda, says banks cannot hike deposit rates much because that would mean an increase in lending rates as well. "As credit growth has been slow, banks cannot increase loan rates," he said. Santhanaraman informed that his bank will be taking decision next week on interest rates.

On the loan rates front, Suresh Gurumai, director, retail banking at Barclays Bank, said his bank will be taking decision later and expects some adjustment in interest rates. Meanwhile Prakash P Mallya, chairman and managing director of Vijaya Bank, expects no hike in home loan rates.

On the other hand two of the biggest banks - the State Bank of India and ICICI Bank - are, however, are in 'wait and watch' mode.

V Vaidyanathan, executive director of ICICI Bank, the country's largest private sector bank, on Thursday gave a statement in which he said bank would 'await cues from the RBI' next month before taking a decision on interest rates.

A senior State Bank of India official in an interview told DNA earlier this week that it is monitoring the situation. "There has been a hardening in rates but we need to take into account many other factors. We will meet on Saturday to take stock," the official said. SBI's main lending rate currently stands at 12.25%.

The CMD of Dena Bank, PL Gairola, said if inflation continues to remain high then the banks are not left with any choice but to hike deposit rates. But he expects that there will be moderation in prices in the medium term.

You may get loans against your post office savings

The Post Office Savings Bank Scheme is an agency which functions under the department of posts on behalf of the ministry of finance. It is the oldest and largest banking institution in the country.

There are around 14 crore account holders with the 1.5 lakh post offices across country; all these years have been denied credit against their investments in various savings schemes because the post offices are not authorized to give credit against investment in various savings schemes. Therefore people especially living in the rural areas are dependent on local moneylenders and banks for credit.

Jyotiradiya Scindia, union minister for state for communication and information technology has advised finance minister P Chidambarm to authorize department of post for sanctioning loan against investments in savings schemes such as National Saving Certificates (NSC), Kisan Vikas Patras (KVP) and other instruments of investments.

As per data available from department of post more than Rs 97,000 crore is deposited under the various schemes. Currently, under the NSC and KVP rules, many depositors can take loans from public sector banks by pledging their investment certificates under NSC and KVP as security. However, the department of post has not been authorized to sanction loan against such investment.

Scindia wrote a letter to the finance minister, he stated, “Many depositors particularly those residing in rural areas are facing difficulties in getting loans against their own deposits and have to approach local financers or banks which are using their discretion for sanctioning loans and charge high rate of interest.”

Scindia gave an advice that if the department of post is authorized to sanction loans against deposits made under small savings schemes it will be helpful for large number of small investors in accessing credit especially the rural people. This will also generate greater revenue, which had been badly impacted by the private couriers Companies.

In India the postal department has a huge network of more than 1, 55,000 post offices, the DoP is also looking at tie-ups with other banks for the distribution of housing loans in the rural areas. India Post in its bid to leverage its reach has also started retailing various financial products.

Currently India Post is selling mutual fund products of various banks with which it had a tie-up with UTI MF, Principal PNB AMC, Prudential ICICI and SBI Mutual Fund. It has also signed a joint venture pact with the Centurion Bank of Punjab for business in foreign exchange.

RBI issue notification for deposit norms for NBFCs

The Reserve Bank of India (RBI) issued a notification to the Non-banking finance companies (NBFCs) having net-owned funds (NOF) less than Rs. 200 lakh to freeze their deposits at current levels

Further in a notification RBI has also asked the asset finance companies (AFCs), having a minimum investment grade credit rating and CRAR (capital-to-risk assets ratio) of 12 per cent, to bring down public deposits to a level i.e. 1.5 times their NOF. RBI has told NBFCs to bring their public deposits to a level equal to their NOF by March 31, 2009.

As per notification companies which have become eligible to accept public deposits up to a certain level and have not accepted deposits up to that limit have been permitted to accept public deposit up to the revised ceiling. NBFCs who have reached NOF level of Rs 200 lakh have to get a certificate issued from statutory auditor on NOF.

RBI stated that these measures are being taken with an aim to strengthen the financials of all deposit taking NBFCs. The notification stated the main objective is to make sure that they raise the NOF to a minimum Rs 200 lakh“in a gradual, non-disruptive and non-discriminatory manner.” RBI further stated that the NBFCs which have not been able to achieve the prescribed ceiling within the set time can approach it for appropriate action on a case-by-case basis.

Banks are increasing deposit rates to cope with high inflation

After the Reserve Bank of India had hiked repo rates by 0.25 percentage points the banks have started increasing deposit rates. A senior banker said this has led to rise in both the deposits as well as lending rates. Earlier banks had increased the lending rates. The increase in deposit rates is definitely going to bring cheers for depositors particularly for the retired persons and those who are mostly dependent on the interest income.

Banks sources informed that if needed the deposit rates may be revised upwards further, if inflation continues to rise. High rate of inflation affects the net return of a depositor on negative terms. Inflation at 8.75% has already considerably reduced net return of a depositor. It is understood that if inflation continues at the current rate, banks will be forced to revise both the lending as well as deposits rates upwards again.

Last month SBI had increased the deposit rates, following SBI, Oriental Bank of Commerce, Yes Bank and Bank of India have increased deposits rates by half a percentage point to one percentage point. Oriental Bank of Commerce has increased the rates for its special deposit scheme Asha Kiran (FDs for 400 days) to 9.75% for senior citizens. For the common man, the interest rate on 400-day deposits is 9.25%.

Yes Bank has increased the rates by 0.5 percentage points across all maturities. According to Yes bank sources, senior citizen depositors of Yes Bank will get a maximum of 10% on fixed deposits with a maturity of one year to 18 months. The others would receive 9.5% return.

SBI revised FD rates for 5-10 years by 0.5 percentage points to 9% while 3-5 years tenure was hiked by 0.35 percentage points. Senior citizens will get 0.5 percentages more.

Bank of India has also increased deposit rates up to 0.5 percentage point for various maturities. For maturities between one year and two years, the rates have been revised to 9.15%, against the earlier rate of 8.50%. For two to three years, the new rate is 9.25% as against earlier rate of 8.75%.

Similarly, fixed deposits of Bank of India of the maturity of three to five years will earn 9.50% interest, against the earlier 8.75%.

The sources said if the inflation continue to rise and crosses 10% mark, there will be another session of increase in the interest rates in the country.

Bank of Rajasthan hikes its interest rates for NRE and FCNR (B)

On Tuesday Bank of Rajasthan hiked its interest rates for Non-Resident (External) rupee deposits (NRE) and Foreign Currency Non-Resident Deposits (Banks) FCNR(B).

A statement released by the bank stated the revised rates will be valid from June 1, 2008.

According to bank sources on Non-Resident (External) rupee deposits, the annual interest rates have been raised to 3.16 percent from 3.08 percent for one year to less than two years, with 3.46 percent from 3.18 percent for two years to less than three years and 3.81 per cent from 3.45 percent for three years and above.

The interest rate on FCNR (B) deposits in US dollar has been hiked to 2.41 percent from 2.33 percent (per annum) for time span of one year to less than two years with 2.71 percent from 2.43 percent (per annum) for two years to less than three years.

And for maturity of three years and above in the FCNR (B) category, the bank has hiked the annual interest rates from the earlier 2.70 percent to 3.06 percent for three years and above but less than four years. Likewise for the maturity of four years and above but less than five years, the new interest rate has been increased to 3.30 percent from the earlier 3.06 percent and for the five year period the rate of interest has been changed from 3.11 percent to 3.47 percent.

Meanwhile in Britain, also the interest rates on FCNR (B) deposits have also been revised from 5.06 percent to 5.40 percent for one year to less than two years and for time period between two and three years the bank has decided to increase it from 4.65 percent to 5.26 percent. For the three year period, the bank has decided to hike it from the earlier 4.62 percent to 5.21 percent.

Moreover the annual interest rates on FCNR (B) deposits in Euro have also been hiked from 4.21 percent to 4.34 percent for the period between one year and two year. For the maturity between two and three years the bank has hiked the interest rate from 3.78 percent to 4.23 percent while for the three year period, the bank has changed it from 3.68 percent to 4.11 percent.

Senior citizens still prefer FDs to park the savings

Today many options are available for parking the money then also the senior citizens prefer to invest their money in fixed deposits (FDs). While, the younger generation earning handsome income prefers to invest in mutual funds and equity capital.

One of the main reasons for FDs is being preferred because they are safe and risk-free method of investing. It is obvious in old age no one wants to take risk in financial matters and all one needs is decent amount of money to survive and enjoy life.

Apart from this the banks have special interest rates for senior citizens between 7.5 and 9.5%, depending upon the time period one wants to invest in.

Meghji Mehta, a Koparkhairane resident, said "After working all these years like a donkey, it is finally time of the life where I can relax and enjoy my life. I don't want to depend on my son, until I can take care of my wife and myself. So I invest in fixed deposit, as there are a few banks who give high rate of interest for the senior citizens."

Today, senior citizens are happy investing in FDs, because of security and surety as share market is unpredictable. An executive from a Vashi-based bank, on condition of anonymity said, "We provide special interest rates for the senior citizens, depending upon the time frame they are looking out for. There has been continuous growth in number of fixed deposits in the past 7-8 months. With stock market being so unpredictable, more senior citizens are opting for the FDs. Apart from senior citizens others have also started investing in FDs, too."

High inflation invest in property

Inflation is at high levels. Income on fixed income means like bonds and fixed deposits is not going to give good returns especially in the fixed deposit section, who have invested for less than 1 year are going to earn negative interest. Among the salaried class most of them invest in fixed deposits but seeing the present scenario investments in real estate seems to be safe and rewarding. It is being considered strong evade against inflation. Increase in inflation levels giving rise to uncertainties and house rents are also moving upwards, therefore it is a time you should think of having a roof over your head.

During the past few years, home loan rates were constantly moving slowly northwards. Adding to despair the steel and cement prices have also increased thus increasing the construction costs. But there are some indicators commonly pointing towards change for good in the coming time period. Some banks have already reduced their rates and others have lowered rates for their new customers.

Now the question arises seeing the present scenario is it the right time to invest in property?

There is competition among the banks to lure in maximum customers as there is very rare chance of home loan borrowers to default on their monthly commitments. Then flexible repayment options and lucrative loan packages are available to choose from which make the loans materialize affordable. Looking at the rising cost of renting in the cities makes more sense to invest in property and pay EMIs towards it. If you have a good credit record and have a stable regular income then getting a home loan is not a difficult task.

The salaried class people prefer to take home loan as tax benefits are associated with home loans such as the amount of EMI outflow is directly dependent on principal amount, rate of interest and loan tenure.

Let us see what the tax benefits attached to home loan. The greater the loan amount, the greater the EMI towards the loan. EMI can be divided into two components - the principal component and the interest component. In the beginning of the home loan tenure, the equated monthly installments will have a higher share of interest component. However, towards the end of the tenure the principal component will be high.

The principal repayment that borrowers make on their home loan is eligible for income deduction under Section 80C of the Income Tax Act. The limit under Section 80C is Rs 1 lakh.

U n d e r Section 24 of the Income Tax Act, the maximum amount of interest deductible from your taxable income is Rs 1.5 lakhs. As a result, your taxable income decreases by that amount. This limit is for self-occupied property only. Homeowners who invest in a second house can also claim benefits for interest repayment of the home loan. There is no limit on the interest repaid unlike the Rs 1.5 lakhs limit under Section 24 for self-occupied property.