Month: May 2021

Suraksha FD By DCB Bank

This small private sector bank has allied with Aditya Birla Sun Life Insurance to provide fixed-deposit customers with free life insurance coverage up to Rs50 lakh for a three-year term. The free life insurance is available to investors between the ages of 18 and 54. This deposit scheme is only available to those who are 55 years old or older. The initial deposit needed is Rs10,000, with a three-year minimum term. The life insurance amount will be equal to the FD amount, up to a maximum of Rs50 lakh across all Suraksha FDs owned by the primary account holder. The free life insurance is only available for the first three years and can not be renewed. In the event of the depositor’s untimely death, the nominee can eventually seek the life insurance coverage under the policy’s terms and conditions. In terms of the deposit amount, the nominee has the option of prematurely closing the account at the current rate of interest or continuing until it matures.

FD Life (Fixed Deposit Life) By ICICI Bank

ICICI Bank Fixed Deposits (FDs) provide guaranteed returns as well as life insurance security. When you open a Fixed Deposit of Rs 3 lakh or more for a minimum of 2 years, FD Life will offer you a complimentary life insurance of Rs 3 lakh for a year. By signing in to ICICI Bank Internet Banking, you can open an online FD Life. This FD account can be opened by resident individuals (age limit must be between 18 to 50 years) either jointly or individually. When the NRI individual is in India, he or she will have access to life insurance through their NRI FD. The GTP Life Cover will only be issued to the primary holder of a joint FD and will only be available for a year. Customers who are eligible should issue a declaration of good health. The GTP Life Cover will not be issued if a customer declares that he or she is not in good health condition as per the website of ICICI Bank. The free life cover available to customers will be withdrawn from the date of partial/premature withdrawal if the deposit is partially/prematurely withdrawn.

HDFC Bank SureCover FD

The SureCover FD from HDFC Bank is an innovative investment vehicle that combines the advantages of a Fixed Deposit with the coverage of a life insurance policy. On booking an HDFC Bank SureCover FD, you will get a life insurance cover equal to the Fixed Deposit principal for the first year. SureCover FDs offer the same interest as Regular Fixed Deposits. Individuals between the ages of 18 and 50 can take use of the HDFC Bank SureCover FD, which can be taken out for a minimum of Rs. 2 lacs and a maximum of Rs. 10 lacs. SureCover FDs are available for a minimum of 12 months and a maximum of 120 months. The life insurance policy will be available for one year and can be renewed by the primary purchaser by paying the applicable premium amount from the second year onwards. On the SureCover FD, you can choose to receive interest monthly or quarterly, but the monthly return rate will be lower than the regular deposit rate. The insurance cover will be terminated with if the Fixed Deposit is fully or partially withdrawn within a year, i.e. >=50% of the initial principal amount. For the first year, the customer is not required to pay a premium. However, the premium for upcoming years, starting from the second year (if relevant), will be charged and paid by the FD’s primary owner. If a customer has a Live SureCover FD under his or her customer ID, he or she cannot get another SureCover FD. According to the HDFC Bank website, a customer can apply for another SureCover FD only after one year has expired after his current FD maturity/pre-closure date.

Our take

A life insurance scheme offers risk cover to the family’s dependents in the event of the policyholder’s demise. One can opt for various life insurance plans individually according to his or her needs such as term insurance plans, whole life insurance plans, retirement plans, senior citizen plans, and other forms of life insurance plans. Life insurance plans are treated as a long-term investment vehicle and are purchased to protect your loved ones from financial threats in the event of your death. Every individual should have life insurance, but a short-term, low-sum assured life insurance policy is counterproductive. As a common concept, you should have 10 times your annual income in life insurance. For instance, if your annual income is Rs 5 lakh, you should have Rs 50 lakh in life insurance. Also, the insurance should protect you before you reach retirement age. These crucial ingredients of life insurance cannot be met with complimentary life insurance benefits that comes with the above discussed FD schemes. As a result, it is not worthwhile to accept bank fixed deposits based on goodies such as life insurance or some other form of insurance and fixed deposits of banks that are considered stable and secure can be preferred by investors.

Post office time deposit – 5 years

If you are looking at a saving instrument for a period of 5-years, then the post office time deposit will beat bank interest rates. In fact, the maximum interest rates that banks offer on a 5-year deposit is 5.5 per per annum. We are talking of the larger private and public sector banks and not the smaller ones or the small finance banks.

Compared to the same, you get an interest rate of 6.8% on a time deposit of the post office. If the deposits are really large by an investor, than an interest differential of 1.3% per annum can make a big difference. However, one of the disadvantages is that if you invest for such a long tenure and if interest rates go up, you could lose.

National Savings Certificate

The interest here again like the NSC is around 6.8%. A sum of Rs 1000/- grows to Rs 1389.49 ​after 5 years. Interest rates over the last few years have just collapsed and for a safe government backed security, this is not bad at all. Another advantage of that the National Savings Certificate is that it gives you tax benefits under SEC80C.

However, it’s important to note that the interest earned is not exempted from tax. So, the interest earned is subject to tax. Again, a good interest rate, but the tenure is too high, as interest rates could climb in the more medium term. Interestingly, an individual can open multiples accounts under the scheme and up to 3 joint accounts can be opened.

PPF

This is not a post office scheme in that sense, given that even banks open the same. Nonetheless, it is still popularly a part of the post office schemes as well. This is one scheme, which is a must have in any portfolio.

The interest earned is completely tax free in the hands of investors, while the investment itself, gives you tax benefits under SEC80C. The interest rate of 7.1% is the best and is probably beaten only by the Senior Citizens Savings Scheme.

The one disadvantage of the scheme though is the long tenure of 15-years. If the PPF account is closed at anytime before 5 years, there is a charge that is deducted from the principal amount. So, if you are not going to invest for the long-term, its better you do not invest.

About the author

Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.