These new FDs will pay more as RBI allows banks to offer deposits that cannot be prematurely broken

The RBI has allowed banks to offer deposits that don’t have the option of premature withdrawal. RBI rules say that term deposits of up to Rs 15 lakh should have premature withdrawal facility. Only deposits exceeding Rs 15 lakh will come without the option of premature withdrawal.

The move will allow banks to offer higher rates on such deposits. Retirees looking for risk free avenues to park their money will be the biggest beneficiaries. Experts feel senior citizens will flock to such deposits in the quest to earn a little extra returns. They won’t mind sacrificing liquidity in the quest for a little extra return. “Given fixed deposits are a low-risk investment and ensures sustained income for pensioners, it won’t be a bad proposition for pensioners,” says financial planner Malhar Majumder.

But he warns against locking up a large part of your portfolio in deposits that cannot be prematurely broken. The absence of premature withdraw facility takes away the biggest advantage of fixed deposits—liquidity. “Taking away the liquidity feature from bank deposits reduces their primary attraction,” says financial planner Suresh Sadagopan.

If you are forced to take a personal loan to tide over a financial emergency, the high interest paid there will nullify the additional returns earned from these deposits. Only money you won’t need for some time should go into these deposits. Senior citizens already earn 50-75 basis points more on term deposits. Some companies such as HDFC offer another 25 basis points if the senior citizen is their home loan customer.