Investing in a Fixed Deposit is a lot more than approaching your favourite bank and locking in your money. You need to find the best deal that you can get. One thing that you might notice is that smaller banks will generally give you a higher interest rate than the larger ones.
Interest rate is something we all check before anything else when we apply for a Fixed Deposit. When doing so, smaller banks tend to offer a higher rate of interest than the larger ones, and in a way, that might seem odd. This can have a profound impact on FD investment.
Let’s find out why.
They Have a Smaller Network
Unlike the large banks, smaller banks don’t have the vast network of the world open to them. They have to find a way to ensure that customers are attracted to them, and choose to trust their money with these banks.
This is the main reason why smaller banks tend to offer a higher interest rate on FD than the large ones. By offering a larger rate of interest, they can potentially invite a lot more customers to invest their money with them, which in turn leads to more cash flow for them, helping them grow as well as yourself.
Larger banks don’t have that problem, since they have a huge network where they can potentially attract customers just with brand name.
Are There any Risks with Investing in a Smaller Bank?
One problem that continuously arises when trying to access smaller banks is that most small banks do not have branches in easily accessible places. This tends to turn away a lot of customers, since they can’t access their money from any location that they want.
A major risk that comes with investing in a smaller bank is that, while Fixed Deposits are generally risk free, if the bank goes into loss and liquidates itself, you can only claim deposit insurance for upto 1 lakh.
This is a reason why checking interest rates isn’t always the best thing when you’re looking to invest in a Fixed Deposit. You should also take a look at the other services that the bank has to offer.
What to Look at when Investing in a Bank?
High interest rates can be great when you’re thinking of investing in a Fixed Deposit. But, as we mentioned before, that’s not the only aspect that you should be concerned when you’re looking to invest in a bank.
If you find a small bank attractive for their higher rate of interest, see how stable the bank is first. You don’t want to lock in a huge amount of money with them, and have it all go belly-up later on.
Another thing to consider is how many branches there are, and how easily you can access them.
If the bank is restricted to a small town or city, and you’re someone who travels often, then it might be best to look at other banks. On the other hand, if you’re someone that stays in one place for an extended period of time, it might be okay to go ahead with the bank of your choice, especially if they offer a Fixed Deposit interest rate that attracts you.
If you choose FD with highest interest rate in India, it might seem like a smart move at first, but can turn out to inconvenience you later on. That’s why it’s important to research on what kind of services the bank you choose can offer you, other than just the interest rate.
That way, you’ll have a complete idea of what to expect during your lock-in period for the Fixed Deposit.
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