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Samir works in a private company and has savings accounts with SBI and ICICI Bank, he is planning to invest in a fixed deposit (FD) of Rs 2 lakh for five years. However, he is unsure whether to choose a private bank or a government bank for his FD investment. Bank FDs are considered the safest option for investment. People who do not want to take any risk on their investments prefer FDs as their first choice, especially for retirement savings.
Security:
In terms of security, both private and government banks are regulated by the Reserve Bank of India (RBI). The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, provides insurance coverage for deposits up to Rs 5 lakh in case of a bank’s failure. Samir’s Rs 2 lakh FD in either a private or government bank would be equally secure. Therefore, security is not a major concern for him in choosing between private and government banks.
Earnings:
The return on investment is a crucial aspect of FDs. Samir should carefully consider the interest rates offered by different banks. Currently, private banks like ICICI Bank offer an annual interest rate of 7% on a five-year FD, while SBI offers 6.5%. Samir stands to gain a benefit of 6,872 rupees by choosing ICICI Bank over SBI for his 2 lakh rupees FD investment.
Comparison of Annual Interest Rates of Private and Government Bank FDs:
Private Bank FD Interest Rates:
|
Private Banks |
RoI on FDs |
|
RBL Bank |
3.50% – 7.80% |
|
IDFC First Bank |
3.00% – 7.50% |
|
Yes Bank |
3.25% – 7.50% |
|
ICICI Bank |
3.00% – 7.10% |
|
HDFC Bank |
3.00% – 7.20% |
Source: bankbazaar.com
Government Bank FD Interest Rates:
|
Government Banks |
RoI on FDs |
|
State Bank of India |
3.00% – 7.10% |
|
Canara Bank |
4.00% – 7.25% |
|
Bandhan Bank |
3.00% – 7.85% |
|
Punjab National Bank |
3.50% – 6.50% |
|
Bank of Baroda |
3.00% – 7.25% |
|
Indian Bank |
2.80% – 7.25% |
Source: bankbazaar.com
Inflation:
Considering the recent increase in the repo rate by RBI to control inflation, Samir should also factor in the impact of inflation on his FD returns. Currently, FD returns may not keep pace with inflation, but FD rates are relatively higher than the inflation rate.
Taxation:
Interest earned on FDs is fully taxable, and Samir needs to consider the tax implications of his investment. Senior citizens can claim a deduction of up to 50,000 rupees on the interest earned from savings accounts and FDs.
Liquidity:
Both private and government bank FDs offer similar liquidity options, allowing investors to break the FD in case of urgent financial needs. However, penalties may apply for premature withdrawal, and Samir should be aware of these terms before making a decision.
Conclusion:
In conclusion, the decision to invest in a private or government bank FD depends on various factors such as interest rates, taxation, and liquidity requirements. Samir should carefully evaluate these aspects and choose the option that aligns with his financial goals and risk tolerance.