Flexi-Deposit Schemes


Flexi-Deposit Schemes   (01-06-2013)

If your  money is sit idle in savings bank accounts just earning 4%.   There is an option to  earn  higher interest on your idle money parked in  savings bank accounts.  Most of the banks in India have a deposit scheme called Flexi-Deposit offering higher interest income to the depositors. 

What is  Flexi-Deposits ?

It is just a mix of Savings account and Fixed Deposit.  It gives you an option to set a limit and the money which exceeds this limit automatically goes into a fixed deposit.

See the below  example:

Mr. A  has a balance of Rs. 200,000 in his savings account. He sets a limit of Rs. 25,000 for the flexi-deposit. Now, Rs. 25,000 remains in the savings account and the rest (Rs. 175,000) goes into an FD earning the interest prevailing on that particular date (depending on the tenure).

The benefits of Flexi-Deposits

This facility gives us the following benefits:

1)      Liquidity

2)      Better returns than savings account

3)      Hassle free investment

Suppose Mr. A issues a cheque of Rs. 50,000. Under normal circumstances, if the account does not have sufficient balance, there would be a cheque bounce. However, in this case, the amount which exceeds the limit (Rs. 25,000 in this case) is taken from the fixed deposit account. The rest of the balance keeps earning the interest for the tenure, as usual.

Product suitability

As specified before, if you are someone looking to stay away from the complicated products in this market and are too busy, this is just tailor made for you. However, if you have enough time to do research on different financial instruments and would like to build a long term portfolio, you might consider it as just another option. The current rates of FD’s hover around 8-9% (expected to fall further) and may not be sufficient to beat inflation in the long run. Some of the banks offering the flexi-deposit are – Axis,HDFC, ICICI

Carefully evaluate your options while choosing any financial product. There might be an opportunity cost involved in missing a better product while choosing the current one. This product is worth taking a shot because of its liquidity and simplicity. But, if you miss out on other ingredients in your portfolio, you might have to blame yourself in the long run.


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