What are floating deposits? | How will be the interest rates calculated for these floating deposits?

September 13th, 2010| Uncategorized.

What are floating deposits? | How will be the interest rates calculated for these floating deposits?

Floating deposits

The total amount that can be received from a bank deposit after the completion of the term is known to us. Bu this situation is changing now. Floating deposits are being introduced. That means the interest rates on the deposit are going to change according to the decisions of the Reserve Bank. Floating deposits were limited to housing loans till now. Banks are introducing these loans to bank deposits to attract the customers. These were not popular when they were introduced nine years back. But now, again SBI is going to implement these deposits from 6th of September. Indian Overseas and HDFC banks are already providing these floating deposits.


Fixed interest given for a limited period of time is a fixed deposit. Floating deposits are exactly opposite to this. The time limit will be fixed in floating deposits. But the interest rates vary from time to time. Interest rates change according to the changes of RBI interest rates. That mean the amount at the end of the deposit term cannot be estimated. When the interest rates increase there may be a profit but it should be remembered that if there is an increase in the interest rates there may be losses.

Computing the interest

Since the interest rates are not fixed, various banks are following various methods to calculate the interest rate. In case of loan the interest on fixed loans is more and floating loans is less. This is exactly opposite in case of deposits. SBI is giving interests basing on Base Rate Minus on newly introduced floating deposits. Presently the base rate of SBI is 7.5%. That means the interest on floating deposits will be less than that. This base rate will be analyzed for every three months. Banks like IOB amend the interest rates for every six years.

When the interest rates are increasing, floating deposits are the best option. These deposits are not correct when the interest rates are at the maximum level. But the interest rates are never fixed. So it is better to take short term deposits than long term deposits. Now the chances of the interest rates increasing is more so short term floating deposits can be taken. SBI is allowing one year floating deposits. Some more banks are offering floating deposits with a minimum of three years duration. Customers who are taking long term floating deposits should be ready to face the risk of losses due to the decrease in interest rates.

SBI scheme

This scheme is being implements from 6th September. Interest rates on floating deposits are more when compared to fixed rates in this bank. Presently the bank is offering floating deposits with 1, 3 and five year duration. 0.5% to 0.25% less interest will be paid on these deposits than the base rates. On one year deposits the bank will pay ½% less than the base rate that is 7% interest.  For the same time duration the interest on fixed deposits is 6.75%. That means ¼% more interest is paid on floating deposits.

IOB schemes

Minimum Rs.1 lakh should be deposited in the floating deposit schemes of this bank. Time duration is minimum 3 years and maximum 10 years. The interest rates on these floating deposits will be amended for every 6 months that is on 1st of March and 1st of September. Presently 7.24% interest is paid on 3-5 years deposits and 7.48% is paid on 5-10 years deposits. This interest is paid for every 3 months. One percent interest will be lessened under pre closure charges, if the deposits are closed before completing the term.

HDFC – SIP method

HDFC is also offering floating deposits. Amount can be deposited every month in these deposits in SIP method. The interest rates will be revised every three months. Rs.2,000 to Rs.50,000 have to be deposited every month to join in this scheme. The time limit of these deposits will be 24 months to 60 months. Presently 7.25% is paid for 2-3 year deposits and 7.5% is paid on 3-5 years deposits.

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