TERM DEPOSIT
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Context:
- Public sector lender Indian Overseas Bank (IOB) has raised the interest rates on rupee-denominated retail term deposits by up to 45 basis points (bps).
Term Deposit:
- Term Deposits, is an investment instrument in which a lump-sum sum amount is deposited at an agreed rate of interest for a fixed period of time, ranging from 1 month to 10 years.
- Term Deposits can be availed at financial institutions like Banks, Non-Banking Financial Companies (NBFC), credit unions, post offices and building societies.
Fixed Deposit vs Term Deposit:
- A term deposit is often used when the deposit is extended for a certain period, say 3 months, 6 months etc. Fixed deposits, on the other hand, are used when the deposit is for a period of 6 months or greater than that. The deposit amount offers a higher rate of return as compared to the banks’ savings accounts.
- In both types of investment options, the investor deposits a certain sum of money for a period to earn an interest rate on it.
- In both cases, at the time of a premature withdrawal of FD, a penalty is levied from the investor as a relatively lower rate of return than the contracted rate.
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