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Co-operative banks offer up to 10% interest on fixed deposits. Should you invest for higher return? Newsखबर. Dated: 2/26/2019 3:17:53 PM | No. of Hits 219




An interest rate of 10% per annum on a fixed deposit may look enticing to may as most commercial banks including State Bank of India offering between 6.5-7.75% on fixed deposits of different tenure.

According to a search on Bankbazaar.com, co-operative banks like Mahaveer Bank are offering an interest rate of 10% to senior citizens on fixed deposits between two-five year tenure. This interest rate is around 250 basis points higher than what regular commercial banks offer on FDs of these tenures.

Typically senior citizens, dependent on FDs for a regular income post retirement, get attracted to these deposits of cooperative banks as a 250 basis point higher interest on a Rs 10 lakh FD will give around Rs 1 lakh more interest over a period of five years.

But the question that arises here is should one go for these deposits?

Many co-operative banks in the past have failed to pay their depositors on time. Worth mentioning here is that unlike commercial banks, the financial health of a co-operative bank cannot be ascertained by accessing their financial statements as they are not publicly available.

Personal finance experts say it is not worth taking the risk for that extra 2-2.5% interest as many co-operative banks have failed in the past.

Typically these co-operative banks give loans to local farmers, small traders and self-help groups (SHG) in the area they operate. Crop failure is a common phenomenon in India, due to which these banks do not get back their money lent to farmers. The same also happens in case of loans given to SHGs. These co-operative banks typically fail as their risk is not evenly spread across sectors like commercial banks.

But investors can put small bets (up to Rs 1 lakh in one co-operative bank) on these fixed deposits as up to Rs 1 lakh in deposits with co-operative banks is insured under the deposit insurance scheme, like other nationalised banks.

In the past, when a co-operatve bank faced trouble, the government has also put curbs on withdrawal above a certain limit till the time the co-operative bank comes back to proper financial health. So keping a large amount as fixed deposit with co-operative banks may be a risky affair, say financial planners.

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