[kushagra452]

Originally Posted by DigitalOne

Need advice on whether to
1. break old low interest rates FDs now and open new one's with higher interest rate (7.1% offered by ICICI)...

I am also facing a similar dilemma. My existing FDs are all locked in at lower rates (~6%) whereas ICICI and other banks are offering 7%+ (even 8%!) interest for long term (365 days+) FDs.

Bank will charge a penalty if I break the FDs. I will need to find out the penalty charges for the FDs.

[ValarMorghulis]

Originally Posted by DigitalOne

Need advice on whether to
1. break old low interest rates FDs now and open new one's with higher interest rate (7.1% offered by ICICI)
or
2. Keep the closer/later (which one??) FDs till maturity, and break the later/closer FDs now.
or
3. keep everything till maturity and open new one's as they keep maturing.

Below are the older interest rates and the maturity dates in my wife's ICICI bank account:

Attachment 2454846

Rule of thumb is: If your Fixed Deposit has at least one year left until it matures, you should not withdraw it early.

That said, check both the amounts and the term left. Usually, you have to pay a penalty for early withdrawal plus a reduced interest rate is applied (which is ~1% lesser), which makes this entire exercise pretty futile.
I recently did this exercise on one of the FDs. Meh. Did not go ahead with others.

[Gansan]

All my existing deposits with HDFC Bank are @6.25% and currently the bank offers 7.75% for new deposits. My first thought was to close all of them prematurely and open anew. But most of the deposits are half way through (~2.5 years) and even the latest ones are 12-18 months old. I finally decided it is not worth the trouble and just made some new deposits. I feel only if a deposit is less than 12 months old, we can think of this plan.

[thanixravindran]

Originally Posted by DigitalOne

Need advice on whether to
1. break old low interest rates FDs now and open new one's with higher interest rate (7.1% offered by ICICI)
or
2. Keep the closer/later (which one??) FDs till maturity, and break the later/closer FDs now.
or
3. keep everything till maturity and open new one's as they keep maturing.

Please do a spreadsheet calculation - Preclose current FD with reduced interest rate of overall FD and adjust the future FD duration to meet these timelines like 6 months or 9 months.

Compare the value against your current secured maturity amount before taxes. If it is positive, go for it. If not, Don't break.

Now add the tax part of it is multi year deposit which you may have paid. If it is complex, please avoid closure.

PS: Inflation and Interest rate has not bottomed out yet. My gut feel suggestion is just wait till maturity and put fresh deposit. While putting new deposit go for 12 to 15 months with max interest rate and set auto renewal instead of long term deposit.

[JithinR]

Since this seems to the thread for FDs at Team BHP, I hope that this is the right place to post my query.

I was watching one of those innumerable finance videos that name dropped the app Stable Money. Downloaded the app and saw that they are heavily promoting FD in Utkarsh Bank (SFB).

Their deposit rates looks quite good and so I thought what the heck, they allow for digital FDs (this way I can avoid the app) and I don't invest as much as I should, I might as well open one.

To help out with projections, they show a table with the Interest Income. So, I filled in the max amount Rs. 2L (for 3 years at 8.5% p.a). However, the interest income shown is less than what online calculators show.

I have attached a screenshot of both the online FD calculator (I have assumed quarterly compounding and even tried with 10% TDS withdrawal to no avail) and Utkarsh's bank own calculation.

Can someone explain to this dummy why the amounts don't match?

[d.w.w.]

Originally Posted by JithinR

Can someone explain to this dummy why the amounts don't match?

Looks like compounding is missing in the first one. They could be paying out interest every year instead of adding it to the principle amount, so interest on this interest is missing. You can check their T&C to confirm.

[JithinR]

Originally Posted by d.w.w.

Looks like compounding is missing in the first one. They could be paying out interest every year instead of adding it to the principle amount, so interest on this interest is missing. You can check their T&C to confirm.

Yeah, it does seem like Simple Interest would be the answer. I did email them but I have not received a response yet.

I definitely didn't see any references to Simple interest being used in the FAQs but it does call out payout frequency as being only at maturity which only makes sense for Compound Interest to my knowledge.

[meerkat]

Originally Posted by d.w.w.

Looks like compounding is missing in the first one. They could be paying out interest every year instead of adding it to the principle amount, so interest on this interest is missing. You can check their T&C to confirm.

Originally Posted by JithinR

Yeah, it does seem like Simple Interest would be the answer. I did email them but I have not received a response yet.

I definitely didn't see any references to Simple interest being used in the FAQs but it does call out payout frequency as being only at maturity which only makes sense for Compound Interest to my knowledge.

Something fishy is going on here: there apparently is no periodic payout of interest -- otherwise the maturity amount would not include the "simple interest" too! So they are not paying out the simple interest before maturity, -- and they are not paying any interest on that simple interest either!

Also, they brag about no premature withdrawal penalty on their Digital FDs, -- yet, one needs to visit a branch for such premature withdrawal !!!

Originally Posted by JithinR

I have attached a screenshot of both the online FD calculator (I have assumed quarterly compounding and even tried with 10% TDS withdrawal to no avail) and Utkarsh's bank own calculation.

That online FD calculator seems to be unusually detailed, and so, quite useful. Could you please tell us which website it is? Thanks.
.

[JithinR]

Originally Posted by meerkat

Something fishy is going on here: there apparently is no periodic payout of interest -- otherwise the maturity amount would not include the "simple interest" too! S..... unusually detailed, and so, quite useful. Could you please tell us which website it is? Thanks.
.

Agreed. I was thinking that it could just be a simple coding mistake but I have not received a response to my email till now.

The calculator is Compound Interest Calculator

[binand]

Originally Posted by JithinR

Can someone explain to this dummy why the amounts don't match?

The bank's calculator is probably accounting for TDS.

[kavensri]

Originally Posted by JithinR

Can someone explain to this dummy why the amounts don't match?

This definitely looks simple interest for me.
Recently I brought an FD from some co-operative bank. 9% interest for 2 years period. They have calculated simple interest for two years and they are going to pay me the interest amount at the end of tenure period. When I did the reverse calculation I found this to be equivalent of 8.36% if compounded quarterly. This was still good enough and hence went ahead with the FD.
In your case, 8.5% simple interest will be same as 7.65% compounded quarterly. If this is still good enough, you should go ahead.

[binand]

Originally Posted by kavensri

This definitely looks simple interest for me.

The bank's website says they use simple interest only for deposits of tenure below 181 days. In all other cases it is quarterly compounded with monthly compounding available upon request (at a lesser rate).

On the other hand, I have calculated the interest to be very close to what the bank's website says with TDS taken into account (since I don't know the exact TDS policy of this bank, there are some assumptions that account for the difference of a few hundred rupees).

[JithinR]

Originally Posted by kavensri

This definitely looks simple interest for me.
Recently I brought an FD from some co-operative bank. 9% interest for 2 years period. They have calculated simple interest for two years and they are going to pay me the interest amount at the end of tenure period....

Thank you. I didn't realize that banks actually do that. I guess I will need to stick to larger banks or start looking at the documentation more closely.

Originally Posted by binand

...

On the other hand, I have calculated the interest to be very close to what the bank's website says with TDS taken into account (since I don't know the exact TDS policy of this bank, there are some assumptions that account for the difference of a few hundred rupees).

Isn't TDS for accounts with verified PAN tagged at 10%. Also, I have never noticed TDS being accounted for in the bank FD calculator (don't think ICICI or HDFC do it for example).

[binand]

Originally Posted by JithinR

Isn't TDS for accounts with verified PAN tagged at 10%. Also, I have never noticed TDS being accounted for in the bank FD calculator (don't think ICICI or HDFC do it for example).

Neither have I. But I have not looked at the practices of all 225+ banks in India either. :-) Maybe these guys are CYA'ing for the situation when after 3 years, the customer comes and says "your calculator said I'd get X interest, but I'm getting only Y < X - what gives?".

The clearest indicator is this: ₹2,00,000 growing to ₹2,51,047 over 3 years with quarterly compounding works out to a CAGR of 7.65%. That is exactly 10% (the TDS rate) below the promised 8.50%.

I built a complete Excel worksheet taking into account the apportioning of quarterly interest into different FYs and assuming FD account debits for TDS on last day of the last month of each quarter. Worked out to a number very close to the 2.51L that the calculator showed.

[JithinR]

Originally Posted by binand

...
The clearest indicator is this: ₹2,00,000 growing to ₹2,51,047 over 3 years with quarterly compounding works out to a CAGR of 7.65%. That is exactly 10% (the TDS rate) below the promised 8.50%.

..

Originally Posted by kavensri

This definitely looks simple interest for me.
..

Originally Posted by meerkat

Something fishy is going on here:...
.

Thanks guys for your input. Since I didn't think this was a Simple interest FD scheme (3 years is too long for that and how they can keep the interest till maturity in that case) and the calculator is detailed enough to show the final amount (case against some hanky panky stuff going on), I decided to mail Utkarsh bank and follow up on it.

They did respond back earlier today and mentioned that it was a technical issue and that it was fixed. Attached is a screenshot showing the updated amount.