Fixed Deposits

Fixed deposits are repayable on the fixed maturity date along with the principal and agreed interest rate for the period. Unlike current account and savings account, no operations are allowed to the customer in the fixed deposit account. The main features of fixed deposits are as follows:

• Fixed deposits are accepted for specified periods at specified interest rates as mutually agreed between the depositor and the banker at the time of opening the account. Since the interest rate on the deposit becomes contractual, it cannot be altered even though the interest rate could change - upward or downward - during the period of the deposit.

• Banks offer varying interest rates for different maturities as decided by their Boards. The maturity-wise interest rates in a bank will, however, be uniform for all customers subject to two exceptions - high value deposits above certain cutoff value and deposits of senior citizens (above the specified age normally 60 years) may be offered higher interest rate.

• Minimum period of fixed deposit is 7 days and maximum period for which a bank may accept a deposit is, presently 1 0 years. Those term deposits, which are held for periods of 6 months and less, are called Short Term Deposits or Short Deposits.

• A deposit receipt is issued by the bank branch accepting the fixed deposit- mentioning the depositor’s name, principal amount, maturity period and interest rate, date of the deposit and its maturity etc.

• The deposit receipt is not a negotiable instrument, nor is it transferable, like a cheque. Only exception to this is the Certificate of Deposits, issued by banks as OTC negotiated product, which are negotiable.

• Banks cannot, as per the current stance of policy, prepay the deposits. However, banks agree to the customers’ request for pre mature closure of deposits, at their discretion, to accommodate customers’ request for meeting emergent expenses. In such cases, interest is paid for the period the deposit was actually with the bank (period between the date of deposit and pre mature closure) at the rate of interest which would be generallyl% lower than the rate applicable to the period elapsed.

• Banks also may grant overdraft/loan against the security of their fixed deposits to meet emergent liquidity requirements of the customers. The interest on such facility will be 1 % to 2% higher than the interest rate on the fixed deposit.

• Banks are required to calculate and credit the interest, payable on the deposits, on a quarterly basis. However, for the convenience of the depositors, banks pay interest at different desired intervals namely monthly, quarterly, half yearly or yearly. At times, the customer opts to reinvest the interest, in which case, the final payment on maturity is at compound rate of interest.

• Banks give different names to such deposits for easy identification, both by the bank and also the depositor.