Floating rate term deposits as the title specifies are a one-of-its kind investment instrument offering floating rate of interest. This variant of fixed deposit has been introduced in the recent years following the Finance Ministry advice. The special feature of the product allows an investor to capitalize on the higher interest rate in the rising interest rate scenario. Also, it is an hedge against the floating borrowing rate.

In order to know if this unique investment product is an ideal choice for you or not, here is a look at its key features.

Eligibility Criterion: Individuals either singly or jointly, a legal guardian on behalf of a minor, companies, trusts and HUFs are eligible to invest in the scheme.

Minimum amount of investment: To invest in the scheme, you need to park a minimum sum of Rs. 1Lac and in multiples of Rs. 10,000 thereafter. The scheme however has upper cap with respect to the maximum investment.

Maturity term: IOB offers fixed deposits with floating rate of interest for a maturity term between 3 years and 10 years. So, in case you have a longer investment horizon then you can surely park your money into such scheme subject to other factors. However, do remember floating rate term deposits have a fixed lock-in and the investment cannot be liquidated before the completion of the lock-in period. So, before investing keep this aspect in mind.

Interest rate : IOB floating rate fixed deposits offer interest rates that are determined on the basis of daily average of 5-year G-securities rate of the last 6 months for FDs with maturity term between 3 years and 5 years. For FDs with a maturity time frame over 5years-10 years, the interest rate depends on the daily average of 10-year G-securities rate of last six months.

The rate on such fixed deposit scheme is changed half-yearly on 1st March and 1st September. And the interest is payable quarterly in the month of January, April, June and September on the 1st working day.

Premature closure : Premature closure of the fixed deposit scheme is allowed only after the completion of the lock-in period. Further, a 10-day prior notice for closure has to be provided to the bank. The foreclosure penalty at the rate of 1% will be deducted in case of premature closure of the scheme and the applicable rate of interest shall remain payable.

Loan provision: Loan on such a FD scheme is provided like other regular FDs to the maximum value of 90% of the deposit amount. Interest on the loan will be charged @ differential rate of interest of 2% and 3% higher than the floating rate of interest in case of self and third party respectively.

Information courtesy: IOB Website