Typically, banks offer fixed deposits with a maximum tenure of 10 years. There is no bank that offers an FD with a tenure longer than 10 years. This may change soon.
Suryoday Small Finance Bank plans to stretch the maximum tenor of a Fixed Deposit (FD) to over 20 years, and the depositors will also be given an option of systematic withdrawal plan half way into the tenor, reported Hindu Business Line.
It will be similar to an annuity plan offered by life insurance companies, but for a limited period.
“Currently, banks offer FDs for up to 10 years. We are working on a longer tenor FD,” said R Baskar Babu, MD & CEO, Suryoday SFB. He noted that the FD product aimed at customers’ having a longer time horizon for savings and looking to benefit from compounding of interest rate. “The product is at the trying stage. We are looking at the interest rate risk…So, if a customer saves ₹50,000 per month for 10-11 years, after the 11th year he can opt for a systematic withdrawal plan, which is, say, two times the invested amount, automatically for another 11 years,” Babu said.
Interest rate to be benchmarked
Experts say interest rate on the FD product could be benchmarked to the widely traded 10-year benchmark government security.
Currently, SBI is possibly the only bank to offer an annuity deposit scheme for three/five/seven or 10 years. Per SBI’s scheme, a customer can deposit a one-time lump sum amount and receive repayment in monthly annuity instalment comprising part of the principal amount plus interest.
Suryoday SFB’s annuity deposit scheme will differ from SBI’s as the former is envisaging a recurring deposit scheme, entailing deposit at monthly intervals in the first half of the deposit tenor.
In the second half of the deposit tenor, the depositor will receive money every month (reverse equated monthly instalment) from the bank.
