subject: Floating and Fixed term deposit rates [print this page] Floating and Fixed term deposit rates Floating and Fixed term deposit rates
Term Deposits are the investments made in financial instruments for a particular period of time, called the maturity period. After the end of the maturity period, a fixed sum on pre-described rates of interest is given to the customers. These term deposits can be fixed or floating. The fixed term deposit is the one in which the bank accepts deposits from the public that can be withdrawn after an agreed fixed time period without requiring to have a separate termination of the account. A floating term deposit is the one in which the banks do not offer any guarantees on the rates of returns, as is the case with the fixed deposit.
The rate of interest in the case of a floating fixed deposit is pegged to some base rate. This rate could be linked to the movements in the exchange rates or to the rates of interest announced by the central bank of the country from time to time. Since these rates keep on varying, so is the interest rate on the floating term deposit. Out of these two, the fixed term deposit is considered a less risky investment proposition because the clients know exactly what they will receive in the years to come. But, since these are less risky, these offer lower interest rates as well. The floating fixed deposit is considered to be a more risky and more rewarding proposition.
An investment planner makes use of both of them to take calculated risks on the invested sums. There is a basic minimum which a person aspires to keep on receiving which can be guaranteed by using the fixed term deposit option. At the same time, there might also be a requirement to see growth in investment for which the floating option can be used.
Besides the extent of risk exposure that a person might be willing to take, the choice of the fixed or the floating term deposits is also guided by the age factor. People in their productive ages are more likely to take the risky investment decisions since they have greater needs of life and can make up for the losses, if any, with their incomes. However, the elders are likely to prefer a more secure investment avenue in fixed deposit.
In special considerations of their age factor, the banks and financial institutions as well as the government, might offer some exclusive offers to them. These could be a higher Elders term deposit interest rates, tax rebates and exemptions and a number of other soaps. For the banks, the people of old age group are more stable group of investors who are not likely to shift their earnings in a short time frame.
