If you have accumulated Tk 200,000-300,000, you may wonder what to do with it and where to deposit it. Many first consider purchasing savings certificates, while others think about opting for an FDR (Fixed Deposit Receipt).
However, confusion often arises regarding whether savings certificates or FDRs are the better choice. Analysts suggest dividing investments between savings certificates and FDRs, as this reduces overall risk.
Savings certificate
Saving certificate is popular among middle-class families, because there is no hassle of investment in this process. Despite frequent banking problems, they remain recognised as a reliable financial instrument in society.
Benefits
1. Saving certificates have government guarantees. So government guarantee applies to savings certificates, making the risk of losing money almost negligible.
2. Higher interest rates compared to FDRs; currently, the average return on savings certificates is around 12 per cent.
3. Guaranteed long-term returns.
4. Possibility of tax exemption or rebate, reducing annual tax liability.
5. Certificates can be encashed in case of emergencies. Many also purchase them for their children’s future.
Disadvantages
1. There are purchase limits. For example, Family Savings Certificates may be purchased up to Tk 4.5 million (45 lakh), while Pension Savings Certificates allow up to Tk 5 million (50 lakh).
2. If a certificate is encashed before maturity it results in reduced profit.
3. Source tax is deducted from the profit.
4. There is limited scope for instant cash withdrawn.
FDR
An FDR is maintained with banks and financial institutions. By depositing money for a fixed period, one may earn profit. FDRs may be made with both public and private institutions.
Benefits
1. Flexibility in choosing tenure depending on the bank; generally, FDRs range from three months to five years.
2. Loans may be availed against FDRs, usually up to 90 per cent of the deposited amount.
3. Some banks offer interest payments monthly or three months basis, which may serve as a source of regular income.
4. FDRs can be encashed comparatively easily when funds are required.
Advantages
1. Interest rates are generally lower than those of savings certificates, ranging from 6 to 9 per cent, though some banks offer slightly higher returns.
2. The future of an FDR depends on the stability of the bank.
3. Early encashment results in reduced interest.