Interest rates on fixed deposits (FDs) have been on their way up for sometime.
MUMBAI: Interest rates on fixed deposits (FDs) have been on their way up for sometime. But what is more interesting is the fact that banks have been offering higher interest rates on FDs of certain tenors.
The latest to join the bandwagon is the largest private-sector bank in the country, ICICI Bank. The bank is offering an interest rate of 8% on a 390- day FD. The minimum deposit required here is Rs 10,000.
The interest rate offered on this special deposit is 1.25% more than the rate offered on deposits with a slightly lesser or higher tenor. For example, on FDs with tenors of 391 days to 2 years also, the interest rate offered is 6.75%. On FDs with a tenor between 366 days to 389 days also, it is 6.75%.
ICICI Bank is not the only one to follow this strategy. ABN Amro has been following this for sometime now, and currently offers an interest rate of 8% on a 400-day FD. In the case of ABN Amro Bank, the difference in interest rates between the special deposit and other deposits is even more pronounced.
A deposit with a maturity period between 1 year to 399 days gets an interest of 6.25%. FDs with tenors between 401 days to 18 months also get a similar interest rate.
ABN Amro is also offering higher interest rates on deposits of 99 days, 188 days and 288 days. HSBC offers an interest rate of 7.5% on a 400-day FD.
Why are these banks seeking funds for a particular term and are willing to pay more for it? Some analysts say they might be covering up their asset-liability mismatch.
Bankers, however, disagree. For them, it’s a pure marketing strategy. “A higher rate of interest is like a discount, gives a focus and makes it easy for us to communicate. We are creating value to communicate and deliver value,” says Anup Bagchi, general manager, ICICI Bank. “It’s difficult to communicate FD rates across the board and this strategy helps bring focus,” he adds. The bank currently offers FDs of 14 different tenures.
Also, for ICICI Bank, which relies heavily on corporate deposits for funding the high credit growth, this is another way of attracting more deposits at a rate, which is closer to the rate offered to corporates for bulk deposits.
According to ABM Amro Bank, “The special tenors were started on an experimental basis to study and assess customer responses to offers on specific tenors and, hence, special rates on these specific tenors”.
What the banks are not saying is that they are feeling the heat from other investment options and by offering higher rates on a few specific tenors they are trying to woo the general public back to FDs
But it’s the investor who’s having the last laugh. From the days when money invested in FDs doubled in five years (meaning an interest rate of around 14.9%) to the time in mid-2004, when the interest on a one-year FD fell to as low as 2.75%, FDs sure have come a long way. And with this strategy of retailing of the wholesale rate, happy days, at least temporarily, are here for the small investor.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}