eTDR Vs eSTDR

A Term Deposit or a Special Term Deposit?

The SBI, broadly, categorises its term (or fixed) deposits into two product types : Term Deposit (TDR) & Special Term Deposits (STDR). The TDR pays out the interest earned by you at a periodicity (monthly, quarterly, half yearly or yearly) chosen by you at the time of opening of the account. However, in the case of a STDR, the interest earned by you is reinvested instead of getting paid out.

If you don't need a regular income in the form of interest payouts, it makes sense to go for a STDR as it allows you to reap the dividends of compounding. The interest accruing on your deposit with the Bank gets reinvested (or compounded) quarterly, giving you superior returns from the first year itself. Let us take the example of the current interest rate of 9.25 %, offered by SBI for domestic term deposits of period one year and above. While a TDR will yield a return of 9.25 %, a STDR will give you an yield of 9.58 % at the end of the first year itself. And the longer your deposit remains with the Bank, the better the returns. A STDR for 120 months, the maximum period for which SBI accepts term deposits, will give an annual return of 14.95 %. The following table illustrates the annual returns for an investment of Rs. One Lac, at the current interest rate of 9.25 %, if the interest reinvestment option is chosen.

 

year end	your deposit	Annual return
1	109575.83	9.58
2	120068.64	10.03
3	131566.21	10.52
4	144164.77	11.04
5	157969.75	11.59
6	173096.67	12.18
7	189672.12	12.81
8	207834.81	13.48
9	227736.73	14.19
10	249544.42	14.95

At the cost of repetition, if you can keep without regular stream of interest payout, let your funds experience the magic of compounding.