Business Standard

The Winners In The Short-Term Fd Race

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Seema NazarethDebarati RoyAnand BSCAL

If you have some cash to spare you just might want to trot over to the bank and invest in a short-term fixed deposit for 30-90 days. With foreign, private and even some public sector banks competing over the last three months to offer amazingly high rates of interest on their deposits, it is currently the most lucrative short term-high yield investment avenue you could ask for. Instigated by the hike in the credit and prime lending rates, banks have been trying to notch up their deposits figures by hiking the interest rates either to overcome a shortage in their short-term funds or simply to retain their customers. Whatever the reason, it certainly looks like a win-win situation for the investor.

 

The hike in the rates was initiated by the foreign banks who continue to offer the highest rates. Most offer 13 per cent on their 30-60 day deposits and 12 per cent on the 61-90 day deposits, barring Standard Chartered which offers a flat 13 per cent for 89 days. Citibank seems the least attractive in this scenario: If you invest for 46-90 days you earn just 10.5 per cent; this increases to 12.5 per cent if you invest for a shorter term of 30-45 days. However, for the best deal put your money in ING Bank for 46-90 days and earn interest at 13.5 per cent. Deposits for 30-45 days at 13.25 per cent and 91-180 days at 13 per cent will also give you yields higher than the other foreign banks.

The private banks are not far behind in this particular race. ICICI Bank revised its rates on March 6 to offer 13 per cent on its 30-45 days deposits while Global Trust Bank and IndusInd Bank have been offering it since January for 30-180 days and 30-90 days deposits respectively. Global Trust Bank, in fact, offers a better rate for the 181 day-1 year deposits, at 13.5 per cent. Other private banks like Timesbank and HDFC are offering rates that are lower by a percentage point or so.

There are some stray cases among the public sector banks such as Corporation Bank and Syndicate Bank which have been offering 12.5 per cent for 46-180 day deposits and 46-90 day deposits respectively since February. But most public sector players are content with offering a maximum of 9-10 per cent for the short term deposits for 30-90 days; some like Punjab National Bank offer only six to seven per cent on their 30-180 day deposits.

But it is the relatively unknown City Union Bank that is offering what seems like the best deal of them all. Depositing your money at this bank for 30-60 days will earn you interest at a remarkable 14 per cent.

Irrespective of which bank you choose to park your money with, remember that you need to act fast. The reason is simple: Once the banks cover the shortage of short-term funds or are able to raise a certain limit of funds, it would be suicidal for them to accept and maintain deposits at such high interest rates.

According to insiders this goldmine might start dwindling from April 1, and rates would revert to the normal 9-10 per cent. Not surprising in a segment which sees a lot of dynamic changes, affected as it is by parameters ranging from RBI banking norms, call money market rates to lending rate fluctuations. The only thing you need to worry about then is: Can you race against time and the next interest rate revision to cash in on this situation?

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First Published: Mar 21 1998 | 12:00 AM IST

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