Banks Are Introducing New Features To Attract Customers — Here's How To Evaluate Them

There is a battle between banks to get a share of the money that investors allocate to different areas as they want to get more deposits flowing into their coffers. For a long period of time, banks have been facing a challenge of liquidity as loan growth has been far more than the deposit growth. At the same time, the interest of investors towards mutual funds and other areas also means that the money that would have flowed to bank deposits is now going elsewhere.

Here are some of the new features that banks are using to attract deposits and how the individual can evaluate them. 

One of the features that several banks are trying to highlight is that the investor gets the money into their bank account on the same day of the maturity of the deposit or when they do a premature redemption. This is not a new feature, but they are seeking to highlight the difference between redemption here and that in mutual funds where the money would come in two to three days, depending on the nature of the fund. It is easy for the bank to return the amount on the same day that the deposit has matured because there is a bank account linked to the deposit and the money moves easily and seamlessly between the deposit and the account.  

The main feature of a fixed deposit is that this is for a specified period for which the interest is being earned. There is a facility for an investor to get their money earlier but this normally comes with a cost. The cost for the investor is that they are charged a penalty for the premature withdrawal which will eat into the returns they are earning.

Some banks are now trying to say that they are willing to waive the premature redemption penalty. Suppose this is done and the conditions related to its implementation are easy to follow. In that case, it will become a good feature for the investor to have because they will not be worried about suffering a hit when they need money earlier. There might be some conditions linked to such a feature, in terms of a minimum holding period of the deposit, or even related to the amount of the deposit and this has to be checked. 

The feature of a fixed deposit is that the deposit is made for a certain amount and when this is withdrawn then the entire deposit has to be redeemed. This is why the investors also have to spend some time and effort in ensuring that they are making the deposits in the right denomination. It should not happen that the investor has to redeem a huge deposit due to the need for a small amount, as this can result in a severe hit for them.

Now, some banks are permitting partial withdrawal of a deposit too, which means that the investor does not have to worry about putting money away in different denomination deposits and creating multiple deposits because they know that if required they can take out a part of the large deposit. 

Another way to ensure that there is no break up of the deposit in case there is a sudden need for funds is to have an overdraft facility against the deposit. Normally, when a person needs this, they have to open a separate overdraft account and follow a lot of procedures.

Now, banks are trying to make this a feature that can be easily accessed and hence a normal deposit can get converted to an overdraft facility and this can be done with less paperwork. This is the real benefit that the investor can enjoy and this needs to be used in an effective manner, though once again it should not lead to reckless spending. 

Arnav Pandya is founder Moneyeduschool.