We Indians largely believe in the adage that slow and steady wins the race. One evidence of this is our penchant for fixed deposits in banks where we get a steady, certain interest rate. Taking the macro India figures, around 60% of our financial savings are invested in fixed deposits.

However, investments in fixed deposits do not beat inflation generally. For example, the interest rate that State bank offers on it's 1 year Fixed Deposits (FD) is 9.25% while the food inflation is above 10%. So if you invest Rs 100 today and get Rs 109.25 after 1 year, how much is the value of your money if you factor in 10% inflation? It will be 109.25 x (100 - inflation)% = 109.25 x 90% = Rs 98.325. This essentially means that the value of your money has gone down!

But another way of looking at it is that by taking unknown risks, you could have lost the entire Rs 100/- !

Fixed deposits is for those who want to invest lump sum amounts at any frequency and at low risk and getting a fixed return as stipulated.

In this first of a series of articles on fixed deposits, we will start with the salient features of bank deposits or fixed deposits with banks.

• The tenure of fixed deposits can vary from as low as 7, 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 5 years or even more. The minimum deposit amount also varies with each bank. It can range from as low as Rs. 100 to an unlimited amount with some banks. The amounts can be in multiple of Rs. 100.
• The banks offer deals and they are free to offer varying rates of interest for products of different maturities. If you are flexible in terms of deposit tenures, you might find differential interest rates in odd tenures like 390 days or 200 days.
• They are guaranteed and insured for deposits upto Rs 100000/- (Rs One Lakh only)
• Banks are offering electronic clearing and using RTGS/NEFT for online transactions.
• Banks offer compounding returns.
• Banks charge for premature closure of fixed deposits and that also varies from Bank to Bank. For example, SBI charges 0.50% while HDFC Bank charges 1%.

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