Fixed deposit options

My dad is 80. Not the most financially savvy person I know of.

Last year, when I took a look at my dad’s finances, I noticed deposits in small and cooperative banks.

Why? Because he’s treated like a person there. With higher automation (and hence, more DIY) and retirement of people he knew at the banks, places like SBI are uncomfortable. It has pushed him more into places like the co-op.

Also, the 1-2% higher interest rate is a good bait.

He doesn’t realise the risks:

  • a less reliable, less compliant bank
  • carrying most of his savings

This is for those who have money in such small banks. Not all are bad, not all are mismanaged. But banks are highly leveraged businesses that a few bad mistakes can cause a run on the bank. So, it is better to go with the conservative banks that are also large. Why go through all the pain for just a small incremental gain?

Personally, if I invest for less than 10% returns, I look first for safety – return of capital with absolutely lowest risk. A safe bank at 5% is any day better than a so-so bank offering 8%. Especially if that money is hard to earn back (esp retirees).

Personally, as of today, I’d keep FDs only in these banks – SBI and HDFC. If you still need to diversify, maybe Kotak and ICICI. That’s it.

As for making banking easier for senior citizens… I feel sorry for them. The best I could do for my dad was to enable internet banking and do it on his behalf. Every now and then, he sees that as loss of control over his money, but quickly gets over it. Until the day we squabble, at least 🙂.

EDIT: I am aware of post office schemes such as SCSS and POMIS. They don’t suit his needs – he needs a good place to park funds for liquidity. Should be available immediately when needed for exigencies. For monthly expenses, he uses his pension. The post office term deposit is an option too – but unless the online facilities are good enough, won’t use them. Also, there’s a limit of 15 lakhs on it as of today.

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