Banks usually offer fixed-term deposits with a maximum term of 10 years. There is no bank that offers a fixed-term deposit with a term longer than 10 years. This may change soon.
Suryoday Small Finance Bank plans to extend the maximum tenor of a fixed deposit (FD) to over 20 years, and depositors will also be given an option of systematic withdrawal plan mid-term, reported Indian business line.
It will be similar to a annuity plan offered by life insurance companies, but for a limited period.
“Currently, banks offer fixed deposits for up to 10 years. We are working on a longer tenor,” said R Baskar Babu, MD and CEO, Suryoday SFB. He noted that the fixed deposit product was aimed at customers who had a longer time horizon to save and were looking to benefit from interest rate compounding. “The product is in a trial stage. We are looking at the interest rate risk… So if a customer saves ₹“The money invested in the bank can be $50,000 per month for 10-11 years, after the 11th year you can opt for a systematic withdrawal plan, which is, say, double the amount invested, automatically for another 11 years,” Babu explained.
Interest rate to be used as a reference
Experts say the interest rate on the FD product could be benchmarked to the widely traded interest rate. 10-year government reference title.
Currently, SBI is perhaps the only bank that offers an annuity deposit plan for three, five, seven or ten years. Under SBI’s plan, a customer can deposit a single lump sum and get repaid in monthly annuity installments comprising part of the principal amount plus interest.
The Suryoday SFB annuity deposit plan will be different from that of SBI as the former provides for a recurring deposit plan, which involves deposits at monthly intervals in the first half of the deposit term.
In the second half of the deposit term, the depositor will receive money every month (reverse monthly installment) from the bank.
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