Why should I invest in bank deposits?

By Moneycontrol Bureau

Traditionally, bank deposits have been the favourite investment avenue for us Indians.

Close to 20 per cent of household savings are invested in bank deposits. And not without reason.

Here's why:

Low risk

Banks deposits come with very low default risk and offer security of your capital.

The real risk to these products is in the form of inflation. This is because if interest rates are low, the post inflation returns on FDs may be negligible or even negative.

Capital guarantee

Your deposit of up to Rs 1 lakh in any bank is protected under RBI's Deposit Guarantee Scheme. This means if you place your deposit in a bank that defaults, you will get up to Rs 1 lakh of your money in the deposit.

Fixed returns

Interest rate on bank deposits is fixed for the entire tenure of the deposit.

FDs of different tenures carry different interest rates. Generally, higher the tenure, higher is the rate.

Liquidity

You can invest in a FD for as little as a month too. Thus, it provides ample liquidity as you can place your surplus for the short term.

Besides, bank deposits can be prematurely withdrawn. However, you will need to pay a penalty of 1 per cent of the interest rate.

Good returns

With high interest rates at present, FD returns have become attractive. For a longer tenure deposit (two to three years), you can even get a rate of around eight to nine per cent per annum. However, rates vary from bank to bank.

How to invest in FDs?

Its very simple. All you need to do is to hop across to your bank branch and apply for a deposit.

You will have to submit basic proofs such as identity, address and your Permanent Account Number (PAN).