Floating rate deposit Most FDs carry a fixed rate of interest and a fixed tenure. However, some banks and non-banking finance companies (NBFCs) have deposits that have a floating interest rate. HDFC, country's largest mortgage lender, has a floating rate deposit where the interest rate is declared every quarter. Reinvestment of interest Some banks provide the facility of reinvesting the interest earned at the prevalent rates. Suppose you are earning Rs.2000 as interest every quarter. The bank will start a new FD with this amount at the prevailing interest rates. No penalty Fixed deposits are instruments with fixed tenures and if the depositor withdraws amount before the maturity, the institution charges a penalty. In such a case, the overall return is less. However, there are some banks that do not charge this penalty if the FD is broken before the maturity. For investors seeking flexibility, such deposits come quite handy. |
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