A Deposit Loan is one of the most popular investment options in India. Several people consider Deposit Loans as the best investment option and invest a significant portion of their savings in this instrument. But what is a Deposit Loan?
A Deposit Loan is a type of deposit in which a sum of money is locked for a fixed period of time. However, the tenure for the Deposit Loan is decided by the person who invests his funds. This tenure could be anywhere from a few days to several years. In return for locking in these funds, Deposit Loans pay the depositor a fixed rate of interest. All banks offer Deposit Loans at different rates. Opening a Deposit Loan is extremely simple and can be done both online and offline. To understand whether investing in a Deposit Loan is the best option, we need to look at the advantages and disadvantages of Deposit Loan account.
The major reason why people prefer investing their funds in a deposit loan is the assured rate of return. Once you invest your funds in a deposit loan account, you can be guaranteed of receiving the stated rate of return. Banks publish the deposit loan rate of interest on their website and in bank branches which makes it easy for a customer to ascertain how much return he will get. Banks also have a deposit loan interest calculator on their websites where a customer can calculate the interest he will receive on investing a particular sum of money for a particular period of time.
Banks are not mandated to deduct tax on any interest until it crosses Rs. 10,000. This means unless the total interest earned by a customer on different deposit loans totals Rs. 10,000, the bank will not deduct any tax. This provides comfort to small deposit holders.
The tenure for a deposit loan is flexible and depends on the deposit holder. Each bank has their own minimum tenure rules however, the final decision can be taken by the deposit holder. It is also possible to decide whether to redeem the deposit loan or to extend it for the same period of time.
It is relatively easy to liquidate a deposit loan. For FDs booked online, they can be liquidated online via net banking as well. Otherwise, most bank branches have a form to liquidate the FD.
An FD is a dependable instrument to keep in case of financial emergencies. Taking a loan against a deposit loan is very easy. You can take a loan up to 95% of the deposit loan amount depending on the bank. This makes it a dependable investment.
The rate of interest on a deposit loan remains the same for the entire duration of the fixed deposit. Even if the rates increase, the bank does not pay additional interest to the deposit holder.
After looking at the advantages and disadvantages of a deposit loan account, it is clear that this is an instrument for people who do not have much of a risk appetite. If you're a person who likes to see fixed income in his account, then this is the instrument for you. The earnings from this form of investment are limited. However, banks have a sweep in facility where excess funds from a savings account can be diverted to a deposit loan until the customer needs these funds. By enabling this feature, you can increase the returns from your deposit loan account.
Fore closure of Deposits will not be permitted until completion of 3 months From the date of Deposits. Deposits foreclosed after 3 months but before 6 months from the date of Deposits no Interest will be paid. Deposits foreclosed after 6 months, interest at 2% shall be deducted from the normal rate of Simple Interest for the period of Deposit.