How about your fixed deposits being flexible? Soon this could be possible.
State Bank of India is all set to offer floating interest rates on term deposits.
The floating rate term deposit product will offer no guarantee on returns, as the interest will change with the revision of base rates.
So, if a depositor wants flexibility in returns, then he can go in for the floating option, said Central Bank of India executive director Arun Kaul told PTI.
"Whether the product is beneficial for the customer, it is very difficult to say, as the rate would change with the revision in the benchmark, which is the base rate in this case," he said.
In case the base rate is revised upward, the customer is benefited, but in case of a downward revision, they stand to lose vis-a-vis a fixed rate product, he said.
SBI will launch floating rate term deposit products linked to the base rate from September 6.
This innovative deposit product will not carry a fixed rate, unlike the existing fixed deposit products.
The interest rate would change in tandem with the base rate, as and when a revision in the benchmark rate takes place.
For a one-year floating fixed deposit of State Bank India, the interest rate will be 50 basis points lower than the existing base rate, which is currently 7.5 per cent.
In comparison, the return on existing fixed deposits with a tenor of 1 year to 554 days stands at 6.75 per cent, while a 555-day fixed deposit earns an interest rate of 7.25 per cent.
In the case of a three-year floating term deposit, the interest rate will be 25 basis points lower than the base rate, while for a five-year floating term deposit, the interest rate will be at par with the base rate.
According to Bank of India executive director M Narendra, floating rate term deposits are a new product in SBI's bouquet.
Whether other banks will launch it or not will depend on the success of this product.
Asked if Bank of India will also launch a similar product, he said, "We will look at it at appropriate time."
A senior official of another state-owned bank said, "It is a complicated product. The customer has to be aware which way interest rate is going to go in the future and accordingly he has to take an informed decision, otherwise he may end up getting lesser returns than fixed rate products."
