Put Your Money To Work Without Risk




Monday, 7 July 2014



Now this is something we all love wondering about. And luckily, we have a simple trick to make your money work for you, with no risk involved. All investments intrinsically carry a factor of risk with them, but today we will see how risk free deposits can work wonders for us -with no strings attached.
When we have some surplus, what do we usually do ? Leave it lying idle in the bank, earning savings interest or invest in some lucrative mutual find ? What if we could make the most of the money without losing on liquidity and without adding any risk ? Here's how.

Taking advantages of compounding, our surplus money could benefit us more than we think. Instead of leaving it idle in our savings accounts, or investing in risk prone instruments, simple fixed deposits can work wonders; this is exactly what we will illustrate in this post and we will clearly demonstrate the advantages of the method we are talking about.


Are we talking about flexi deposits ? 

No. Flexi deposits are wonderful instruments that have been introduced by many banks but with some distinct disadvantages. Banks advertise the liquidity of flexi deposits and stun us, and silently put forward limitations which we have to bear. Some of them even offer a reduced rate of interest, while some require a minimum threshold balance on the savings accounts, which we often overlook. The difference may appear nominal but we will definitely love the fruits without any of the strings attached.

Then what’s the trick ?

Plain and simple fixed deposits. The first step is to find out the time period slab for which your bank pays the highest rate of interest. And then, all we have to do is create a fixed deposit for that period with our surplus money. To add to the fun, we can activate auto renewal of principal and interest, which will lead to even higher earnings. The surplus will earn high rate of interest for the period, which is always higher than savings account interest.

What if we need the funds urgently ?

Simply withdraw prematurely. You will not lose on liquidity and will earn a higher interest at all times, even if you break the deposit. The lowest interest rate slab minus the premature withdrawal penalty is also higher than savings interest rates.

Let’s compare this strategy with similar options available with banks.



State Bank of India
ICICI Bank
Self-Created FDs
Minimum Commitment
Rs 25,000
Rs 5,000 per annum
Rs 15,000
Rs 500 per month
Not Applicable
Loss of Interest in 10 years
Rs 23,658

Rs 14,195

nil
Penalty for Default
Not Applicable
Yes
Not Applicable
Not Applicable
Not Applicable
Minimum Deposit Period
1 year
5 years
1 year
6 months
Not Applicable
Maximum Deposit Period
5 years
7 years
Not Applicable
10 years
Not Applicable
Premature Withdrawal Charges
0.5% lesser interest
0.5% lesser interest
0.5% - 1% lesser interest depending on tenure
0.5% - 1% lesser interest depending on tenure
0.5 % reduced interest depending in bank

Note that banks require a minimum threshold value in the savings account only above which funds enjoy FD interest. Had this limitation not been there, the threshold amount would also earn FD interest. Assuming interest rates to be 4% and 9 % on savings accounts and fixed deposits respectively, one would lose interest earnings of values shown in the “Loss of Interest in 10 years” row.

Summary of advantages of our method:
  • Most banks offer internet banking these days. Creating and liquidating deposits can happen in a few clicks.
  • A simple record of all such deposits opened will allow us to liquidate deposits on a LIFO basis, so that we lose the least amount of interest.
  • No minimum balance commitments.
  • Earn higher interest.
  • Full liquidity.
  • No limitations on tenure – can be rolled over again and again.
So why leave your money idle ? Take the reins in your hands and make the most of your money. With the effect of compounding on your side, you are sure to reap good returns in years to come. We love interacting with our readers. Leave your questions and comments below and share your inputs with us.


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