Saturday, 10 March 2012

A Term Deposit or a Special Term Deposit?

The SBI, broadly, categorises its term (or fixed) deposits into two product types : Term Deposit (TDR) & Special Term Deposits (STDR). The TDR pays out the interest earned by you at a periodicity (monthly, quarterly, half yearly or yearly) chosen by you at the time of opening of the account. However, in the case of a STDR, the interest earned by you is reinvested instead of getting paid out.
If you don't need a regular income in the form of interest payouts, it makes sense to go for a STDR as it allows you to reap the dividends of compounding. The interest accruing on your deposit with the Bank gets reinvested (or compounded) quarterly, giving you superior returns from the first year itself. Let us take the example of the current interest rate of 9.25 %, offered by SBI for domestic term deposits of period one year and above. While a TDR will yield a return of 9.25 %, a STDR will give you an yield of 9.58 % at the end of the first year itself. And the longer your deposit remains with the Bank, the better the returns. A STDR for 120 months, the maximum period for which SBI accepts term deposits, will give an annual return of 14.95 %. The following table illustrates the annual returns for an investment of Rs. One Lac, at the current interest rate of 9.25 %, if the interest reinvestment option is chosen.


year end your deposit Annual return
1 109575.83 9.58
2 120068.64 10.03
3 131566.21 10.52
4 144164.77 11.04
5 157969.75 11.59
6 173096.67 12.18
7 189672.12 12.81
8 207834.81 13.48
9 227736.73 14.19
10 249544.42 14.95


At the cost of repetition, if you can keep without regular stream of interest payout, let your funds experience the magic of compounding.

P.S The author of this post waits all ears for your views and comments. Please let them flow freely.If you have any queries, please share them through comments. The author promises to get back to you at the earliest

19 comments:

  1. very helpful analysis..thanx

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  2. I have a query... Under which of these 2 schemes I can deposit additional amount?? for example in first month if I deposit 10,000 only... can I deposit another 10,000 or less the next month so that I can keep on increasing the amount and receive interest yearly on total added amount??

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    Replies
    1. AFAIK, these deposits don't have the option of redepositing. The term itself says FIXED deposits. In your case, I think recurring account is a better option.

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    2. There is no such option to invest additional amount in an existing fixed deposit. However, you can choose the open a saving account with sweep facility. SBI calls such an account as a Saving Plus Account (SB Plus). You can open an SB Plus account at any branch of SBI. You can also choose to convert your existing saving account to an SB Plus account.
      In a SB Plus account, any amount above a threshold amount chosen
      by you (minimum threshold is Rs. 5000.00) is swept out automatically from your SB Plus account to open a fixed deposit. You can choose the frequency of the execution of the sweeps as well as the maturity period of the fixed deposit. As and when the sweep is executed, depending on the balance in the SB Plus account, fresh fixed deposits keep on getting created. This means that any amount above the threshold amount automatically earns the returns of a fixed deposit account.
      The icing on the cake is that the fixed deposits are totally liquid. Whenever any withdrawals are made in the SB Plus account, the fixed deposits are suitably broken and swept back in the SB Plus account. The interest on the fixed deposit for the period for which the fixed deposit has existed, is also credited to the SB Plus account along with the fixed deposit amount credited to the SB Plus account.

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    3. This comment has been removed by the author.

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    4. 1) Is SBI 'SB Plus account' same as that of SBI 'Flexi account' ?

      2) How can one know if a SBI account is 'SB Plus account' or if he is getting Term Deposit interest for that 'SB Plus account'?

      3) May I please know current interest rate of SBI 'SB Plus account'?

      4) Is SBI 'SB Plus account' is better option that SBI Term deposit?

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  3. Is there any Tax applicable on Interest earned at the time of maturity?

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  4. I like your blog post. Keep on writing this type of great stuff. I'll make sure to follow up on your blog in the future.

    NRE NRO Account

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  5. nice i get my ans.......
    but one quetion is is it get any relive from tax by investing large amount on stdr

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  6. @Statebankschemes: Is the sweep facility avbl in sbi is tax exempted??

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  7. If i select the TDR and I receive the monthly interest, and their after premature withdrawn of FD then what percentage of interest will i receive. Like i have invested 1L for 1yr, current rate of interest is 9% on monthly interest scheme. After 4 month i withdrawn the FD, Now how much interest will i receive till 4th month.

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  8. I have done a FD under STDR scheme but I want to close it prematurely. For, how many minimum days should I keep it before closing it to get the minimum interest?

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  9. what amount will i get if i deposit rs90000 for a eriod of one year in stdr

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  10. which one is better for fixed deposit tdr or stdr?

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