Join the celebration

The minimum amount you can deposit in this scheme is Rs 50,000,which means that the entry barrier has been set high. However,there is no upper limit to how much you can invest. The scheme offers a dual rate of interest 11 per cent for the general public which translates into an effective yield of 13.01 per cent,and 11.25 per cent an effective yield of 13.36 per cent for senior citizens. The tenure of deposit is 39 months. A deposit of Rs 50,000 will fetch Rs 71,143 to people below 65 years,and Rs 71,707 to senior citizens at maturity after 39 months.

Along with the fixed deposit FD,depositors will also get a free accidental death insurance cover of up to Rs 1 lakh for people below 70 years. The scheme opened on January 1 and closes on March 31,2009.

If you make premature withdrawal,you will be paid a rate of interest that is one per cent lower than the rate of interest applicable for the period for which the deposit remained with the bank.

Check the bona fides

It is always advisable to check the financial health of the company before committing your money to it. In its Q3 result quarter ended December 2008,South Indian Bank recorded a year-on-year growth of 33.1 per cent in net profit and a growth of 30 per cent in income. The ratio of net non-performing assets NPA to advances came down to 0.39 per cent against 0.49 per cent for the same time period last year.

In a scenario where most public and private sector banks are offering a return in the range of 8.5-9 per cent on fixed deposits with a three-year tenure,this product looks attractive. Says V.A. Joseph,chief executive officer and managing director of the bank: This deposit scheme is introduced to reward customers on the completion of 80 years of service of our bank. It is meant to offer safe and good returns at a time of financial crisis. Moreover,20 per cent of the banks deposits are Non Resident External deposits,which are low-cost as the rate of interest on such deposits is between 4-5 per cent. So,a short-term plan like this will not put pressure on our margins.

Should you invest?

According to Jaideep Lunial,a Chandigarh-based financial planner,Before investing in such a product,investors should do the due diligence about the banks credit rating and NPA level. Bonds of South Indian Bank have an A rating as on November 5,2007,issued by Fitch,a credit-rating agency. This rating indicates adequate safety.

With interest rates expected to fall further,rates on fixed deposits are also expected to come down.

Says Veer Sardesai,a Pune-based financial planner,If you have emergency funds that you would not require for three years,you could park the money in this type of deposit and earn good returns. As there is a penalty on premature withdrawal,you should be certain that you will not require the funds. This scheme will be beneficial for investors who fall in the lower tax bracket because tax on interest income from FDs is charged at the marginal income tax rate. Individuals in the higher tax brackets should opt for income funds where,due to the application of long-term capital gains tax,they will earn better post-tax returns.

If you are comfortable with the credit rating and have funds to spare for 39 months,you may take advantage of this scheme.