If you have some idea about changing interest rate scenario and have some judgement about factors which affects the interest rate scenario then apart from normal fixed deposits such depositors can also think about Floating Rate Term Deposits.
As name indicates,Floating Rate Term Deposits – FRTDs are deposits in which interest rate is not fixed and reset for every quarter.
Interest rates for FRTDs:
Currently IDBI bank offers Floating Rate Term deposits where bank decides anchor rate based on Avg yield of 364 days Treasury bill auction by RBI and mark up rate is offered depending on duration of deposit and effective yield of the particular quarter is decided.
Current FRTD Interest rate for quarter 0ct 01 -Dec31 , 2013:
| Tenure – Yrs | Anchor Rate | Mark Up Rate | Effective Rate For General depositors for current quarter 01 oct -31 Dec. | effective rate for sr citizens – 0.50% higher |
| 1 Yr | 9.53% | 1% | 10.53% | 11.03% |
| 2 Yrs | 9.53% | 1.1% | 10.63% | 11.13% |
| 3 yrs | 9.53% | 1.25% | 10.78% | 11.28% |
| 5 yrs | 9.53% | 1.25% | 10.78% | 11.28% |
| 7 yrs | 9.53% | 1.35% | 10.88% | 11.38% |
| 10 yrs | 9.53% | 1.4% | 10.93% | 11.43% |
| >10-20 | 9.53% | 1.4% | 10.93% | 11.43% |
with this rate the accumulated interest will be added in the deposit for the quarter.
This rate shall reset for each quarter and interest will be added for quarter as per the effective interest rate.
Limitations of FRTD:
- Maturity value is not known earlier: Unlike to general deposits , maturity value will not known earlier as interest rate is not fixed for complete tenure.
- If Interest rate go down then it may result in lower effective rate.
- Depositor need to keep deposits for at least one year and premature withdrawal deposits before completion of one year is not possible.
So if you have any good idea or approximations about factors like inflation etc which affects the interest rates then you can take chance through floating rate deposits.
