You money is in danger if you picked this risky option

Fixed Deposits (FD) and Recurring Deposits (RDs) remain one of the most popular saving instruments for customer segments, that have so far been out of the ambit of formal banking channels. These offer such customers a secure option for their savings in comparison to informal and riskier savings options like chit funds. Assured and safe returns Investment in FDs guarantees a customer an assured return. 

Banks now offer additional advantages like low cost of entry, premature withdrawal without penalty and ability to partially withdraw in case of an emergency. The underlying principle behind such features is the recognition that customers often face liquidity challenges and do not wish to lock funds in non-breakable deposit schemes or options where there is a high penalty to be paid. For senior citizens most banks offer an additional rate of 0.5%. FDs and RDs are also the best options for long-term savings to achieve financial goals, if you can afford to invest only small amounts. FDs and RDs score over chit funds in many ways. 

Chit Funds are not regulated like bank deposits. There has been a history of unorganised chit funds or similar structured schemes duping depositors with improbable rate of interest offers, which eventually can never get paid out. Investing in a chit fund may result in an immediate benefit of getting a chunk of money at short notice, but can also result in a loss when seen in the long run, on interest pay out and final gains. Besides, customers do not have full transparency. A significant advantage of FD’s is that the Reserve Bank of India, through Deposit Insurance and Credit Guarantee Corporation (DICGC) insures every bank customer on their savings and FDs, up to a maximum of Rs 1 lakh, in the event of a bank failure. Digital innovation Banks have taken several strides in ensuring paperless opening of a FD or RD of Know Your Customer authenticated customers using net banking. 

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This enables customers to open FD or RD in less than a minute, saving them the trouble of a physical visit to a bank branch and signing multiple forms. Customers can also cash out or break their deposits and transfer money out in emergency situations. These advantages make FD products better, secure and convenient. 

By, Vijay Balakrishnan
(The writer is chief marketing officer, Ujjivan Small Finance Bank )

Source: DNA