The power of two

Fixed deposit (FD) is among retail investors’ favoured options as it offers security of capital and assured income. Since it is a term deposit, depositor cannot withdraw the amount before the tenure is over; in some cases withdrawal before maturity may be allowed but it entails a penalty.

However, certain hybrid products introduced by banks offer the interest rates of FD with the features of savings bank. SBI Multi option deposit scheme is one such product.

What is SBI MOD?

SBI Multi Option Deposit (MOD) Scheme is a term deposit linked to the Savings or Current Account (individual). Although it is a term deposit in essence, depositors can withdraw from the MOD account in multiples of ₹1,000 (without premature withdrawal charges) as per depositor’s need. The balance amount in the MOD account will continue to earn the Term Deposit rates applicable at time of initial deposit.

The advantage of this product over traditional FD is that the depositor can withdraw the amount required without any premature withdrawal charges, a useful feature for depositors.

The SBI Multi option deposit scheme may sound similar to sweep-in facility offered by many banks but there is a small variation.

In a sweep-in facility, if the balance in the savings account reaches a particular level, then some portion of it will be converted into a fixed deposit and available for withdrawal when required. Once such example is HDFC Bank’s SavingsMax account where, if the balance reaches ₹1,25,000 or above, then the amount above ₹1,00,000 will be converted into fixed deposit, earning a higher rate and remaining in savings account.

However, SBI MOD does not work in this way; this deposit can be started with minimum investment of ₹10,000 and the entire amount will earn the fixed deposit interest rate.

The minimum deposit tenure of SBI MOD is one year and the maximum is five years. SBI offers interest of 6.8 per cent per annum for 1–2-year tenure, 7 per cent per annum for 2–3-year tenure, 6.5 per cent for 3-5 year and above tenure for non-senior citizens while senior citizens get 50 basis points additional interest rate. The interest income is liable for TDS deduction as per the norms at the applicable rate. SBI MOD scheme also offers loan against deposit; SBI gives up to 95 per cent of deposit amount as loan.

How to start this deposit?

Depositors have two options — visit the branch, fill out forms and start deposit or go for online facility. For this, one must log into the SBI mobile application or internet banking website, then open the FD section and click on e-TDR/e-STDR (FD). Now the depositor will find MOD option; select e-TDR/e-STDR and then click on proceed. After this step, one needs to fill in details like the account number from where the funds will be debited, deposit tenure, etc., and, confirm the MOD opening request.

What should investors do?

Although the interest rate offered by SBI may be less compared to other private banks and certain Small Finance Banks, this product merits consideration given its liquidity. Investors may therefore opt for a 2–3-year tenure deposit, which fetches interest rate of 7 per cent per annum.

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