Investing in Bank Deposits

Investing in Bank Deposits The easiest way all do is to deposit their money in bank fixed deposits. Because they feel it is the safest and easiest method to grow their money and also it is highly liquid. Banks normally give interest ranging from 3% to 10% per year (approx.) on the deposits kept by public. The senior citizens will get higher interest ranging from 0.5% to 1.0%. The rate may vary from time to time. The rate of interest also varies with the period of deposit. The higher the period higher will be the interest. But recently this trend has changed. Now the banks fix their rate of interest based on their assets and liabilities so you may get higher interest for shorter period and lesser interest for higher periods. Some banks also give floating rate (the rate of interest varies when bank raises or lowers the interest) but this concept has not find good response from public. Here the banks normally give two options. You can get simple interest or you can get compound interest. When you opt for simple interest you may get interest at Monthly, Quarterly, Half yearly or Yearly intervals. Normally banks give quarterly interest. If you opt for monthly interest you will get discounted rate. This type of deposit is suitable for those who want to get fixed monthly income like senior citizen or when you have fixed monthly commitment that can be met by this interest. (like monthly rent, school fees etc.) Other way is when you do not opt for above you should go to compound interest, here the interest is added to principal and interest portion also starts to earn interest. This type is suitable for those who want to get lumpsum amount after a period like for education, marriage etc. Other very good deposit is Recurring deposit, here you can invest small amount monthly for a period ranging from one year to ten years and get lumpsum at the end of the term. This is novel scheme for salaried class as they can save small and get big. Higher the period greater will be the amount you get back. Drawback: 1. The maximum period of deposit will be for 10 years. 2. Tax will be deducted at source if the interest earned on your deposit exceeds threshold limit fixed by income tax department which is Rs.10000 per year. If you want not to deduct tax you must submit form 15H/G every year. 3. Thinking that the rate of inflation is 5% the return you will get on these deposits is very minimal. 4. Interest earned on deposit will be added to income in hands of assesse and tax will be paid by him. 5. Now many banks are charging 0.5% to 1% for prematurely withdrawing your deposits thus lowering your yield. Plus Points: 1. Rs.100000/- per year exemption can be got under sec.80CCC of IT act. 2. Highly liquid. 3. Repayment risk is minimal. 4. Loans can be taken in case of need. Calculations: Rs.100000/- invested in Fixed deposit for 5 years at 10% p.a. at quarterly interest option will fetch you Rs.150000/- (principle plus interest) effective int. 10% Rs.100000/- invested in Compounding interest scheme for 5 years at 10% will fetch you Rs.163862/- (principle plus interest) effective int. 12.77% Rs.1000/- invested per month in Recurring deposit at 10% will fetch you Rs.12665/- for 1 year (prin. Plus int.) effective int. 10.38% Rs.77908/- for 5 year (prin. Plus int.) effective int. 12.77% Rs.205569/- for 10 year (prin. Plus int.) effective int. 16.85%

Govt should cut stake in banks to below 51%

The Indian Banks’ Association has made a representation to the government proposing consolidation of public sector banks as well as dilution of government holding to below 51%. “Even with a 33% or 26% holding, the government will be the single largest shareholder, thereby giving it total control,” said IBA chief executive HN Sinor. However, if that happens, the government will lose the right of appointment, which will rest with the Reserve Bank of India (RBI) thereafter.

YES Bank bets on mobile phone for micro-fin biz

YES Bank is looking at using mobile phone as a platform to enhance the reach and bring down the cost of micro-finance. The bank along with Accion, the US based micro-finance agency, plans to tie up with a global software provider in order to find a software solution for the same. “We will pass on the cost benefits to our customer by bringing down the interest rates on micro-finance,” said Mr Somak Ghosh, President, Corporate Finance and Development Banking, YES Bank. “We are in advanced stages of talks and are hopeful of launching the product by the end of this year or by March 2008,” he said. He felt it would bring down the cost of operations by about 30-35 per cent. The bank also plans to lend it to other banks and micro-finance institutions. The bank plans to launch more products such as medical loan, emergency loan, special events loan and home improvement loan from the second and third year based on its experience and the track record of its clients.

Andhra Bank drive on ‘kiddy bank’

Andhra Bank is very aggressive on the ‘kiddy bank’ account. Andhra Bank has this year commenced a month-long ‘AB Celebrations 2007’ drive to create awareness about the various products and services offered. At one such meeting, its Deputy General Manager (Chennai Region), Mr P.N. Murthy, gave away the ‘kiddy bank’ doll, which, according to him, was the USB product of Andhra Bank. While asking the child to put his/her savings into it, Mr Murthy also informed the gathering about the secret lock in the doll. “This can be opened only at the branch where the account is held.” It is now targeting schools for popularising this product.