Bank fixed deposits (FDs) have long been one of the most simple investment options available to a fixed income investor. One just needs to choose a tenure or consider the interest rate for a given period and write a cheque to open it.
With FDs across all banks largely carrying similar features, a higher interest rate is often an important differentiator among them. Going forward, there could be more such differentiators, thus requiring an informed decision before one opens a bank FD.
Recently, ICICI Bank has launched a new FD scheme called FD Xtra, that offers a free insurance cover and a host of other new benefits. Let’s look at a few of them ( FD Life, FD Invest and FD Income) and see what they are and whom they suit:
1. FD Plus Life Cover
The FD comes with a free life cover. Yes, you heard it right. On opening ‘FD Life’, there is a free life cover for the account holder. The life cover will be available to those who are 18-50 years of age. The cover is on a minimum deposit of Rs 3 lakh and for a minimum tenure of 2 years. The cover, however, is free only for the first year and may be renewed by the FD holder in the second year on paying the premium. The maximum cover is capped at Rs 3 lakh and, therefore, a FD for say Rs 9 lakh will still fetch a cover of Rs 3 lakh.
However, this feature is not new in the industry. DCB Bank – in its Suraksha FD – has been offering a free life cover to those who are 18-54 years of age, on a minimum deposit of Rs 10,000 and for a minimum tenure of 3 years up to a maximum of Rs 50 lakh.
Watch-outs: Before choosing ‘FD Plus Life Cover kind deposits’, check if other banks are offering better rates for the period that you wish to invest for. Also, consider the amount of FD and see if the amount of cover suffices your life cover needs. Ideally, one should have life cover of at least ten times of one’s annual net-take home pay.
To avail life cover in either of these banks, while DCB in its deposits is offering 8.05 per cent interest for 36 months, ICICI Bank gives 7.5 per cent interest on its 24 months deposit.
2. Withdrawal of life cover
In the case of partial or any premature withdrawal of such deposits, the free life cover will be withdrawn from the date of partial or premature withdrawal. The penalty, if any, on the exiting FD may also apply as per the rules of the bank.
Watch outs: Make sure, you do not need the funds in between, else the purpose gets defeated. Else, opt for a loan or avail an overdraft facility to tide over liquidity condition rather than breaking such an FD.
3. Group life cover
The life cover being provided in the FD Xtra is a group insurance cover through a life insurance company. A certificate of insurance will be sent to the FD holder with a reference to the group master policy and the insurer’s name.
4. Joint holdings
Although such deposits may be opened by resident individuals either on single or joint holding, the life cover will only apply to the first deposit holder.
Bank FDs carry interest payout options of monthly, quarterly, half-yearly and annual. Such options will apply even to these FDs.
Insurance is a contract between the insured and the insurer and rests on the principles of good faith. While filling the application form for such an FD, one needs to provide a declaration of good health. On declaring that one is not in good health, the life cover may not be provided. But remember, any misleading declaration may repudiate the claim.
7. FD Income
In ‘FD Income’, a cumulative FD for a minimum of Rs 2 lakh for a minimum period of 24 months ( called the investment phase ) gets opened. On completion of the investment phase, the entire maturity proceeds including the principal and interest get invested in the Annuity Fixed Deposit for the Payout period.
For example, if one invests Rs 2 lakh for 24 months at 7.25 percent, the corpus becomes nearly Rs 230,908 during the investment phase. On maturity, this corpus is not handed over to the FD holder and instead, during the payout phase, a monthly payout of Rs 10,365 is paid for 24 months. The interest rate applicable will be for 4 years, in this case.
Watch outs: The FD is designed such that there is no option for the regular interest option during the investment phase. Choose to go with this version of FD, if there is a requirement of such nature.
8. FD plus MF SIP
On opening ‘FD Invest’, the monthly interest earned on the principal invested gets invested in Mutual Fund (MF) SIP. Importantly, the holding pattern or the mode of operation should be single.
The minimum FD amount that would be required for FD Invest would be Rs 2 lakh and can be opened for any tenure ranging from 12 months to 10 years. The FD will, however, be opened with monthly interest payout mode.
Watch-outs: The SIP will have to be only from within the MF schemes of ICICI Prudential Mutual Funds which could either be debt funds or equity funds. Make an informed choice based on the scheme’s consistent long-term performance rather than merely banking on the ease of transaction.