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Modernizing Fixed Deposits, the Digital Way

Sep 20, 2022

Indians save up to 28.2% of their income on average. And 95% of them prefer Fixed Deposits (FDs) as their primary savings option.  

Maintaining a healthy spending-saving balance has always been a priority in Indian households. Concepts of saving and investing for the rainy day are inculcated in young minds to ensure financial stability, discipline, and freedom.

Though there are several investment instruments in the market, Fixed Deposit (FD) rules the heart of the savings-savvy populace in India. As they are not market-linked instruments, FDs are low on financial risk with optimal wealth appreciation potential. So, it’s a safe haven for people to park their funds and earn reasonable interest without market exposure.   

Are fixed deposits available only in the Indian market?

Not exactly. FDs are available in different formats across the world. It is known as a Certificate of Deposit/Term Deposit in the US, Canada, and New Zealand and as Fixed Term Bonds in the UK. While the average interest rate in India is around 5%, it ranges between 0.5% and a maximum of 2% in other countries. 

Pros and cons of fixed deposits

A fixed deposit has a tenure starting from 7 days and can extend as high as 10 years. Complete safety of capital is ensured in an FD, along with stable returns. As a tax-saving instrument, they deliver long standing benefits that include low risk and flexibility as follows.

  • Overdraft facilities against FDs to help customers in case of emergencies
  • Tax exemption benefits under section 80C of the Income Tax Act, 1961
  • Protected up to Rs. 5 lakhs by the DICGC’s (Deposit Insurance and Credit Guarantee Corporation) insurance cover
  • Assured returns and minimized risks as the rates do not fluctuate often

Some banks offer free insurance and health care benefits alongside their FD investment. However, despite all the advantages, FD had a few limitations. 

Creating a physical FD at the bank required multiple trips to the branch, a lot of paperwork, and a swirl of redirects to complete a single task. These cause great inconvenience to the customer in today’s digital age.  

The limitations mentioned above called for a modernized digital upgrade of FD, the go-to investment choice of multitudes.

Rise of digital fixed deposits

With the digitization of finance echoing in every nook of the country, the traditional FD model had to adapt to emerging trends. The pandemic further fueled the shift to modernized digital fixed deposits. People wanted to go about their daily lives as normally as possible without risking their safety. Instant remote onboarding, digital KYC, and personalized customer experiences emerged as factors that determined the success of bank deposits.    

Banks, NBFCs, and fintechs had to embrace the much-needed digital avatar and modernized their traditional approaches. But it was again not without challenges. Here’s a quick peek into their pain points.

  • Conventional banks’ reliance on outdated, monolithic technology hindered customer base scaling, NBFC and fintech interactions, and expansions
  • There was no single window for the customers to compare and invest
  • The FD process was exhaustive with multiple process integrations, each focusing on only particular stages of the product lifecycle

The inefficiencies of legacy platforms impacted the agility, scaling, and profitability potential of  FD providers.

Benefits of digitizing the FD platform

The prospect of saving time, effort, and the cost is something that excites everyone about technological advancement.  

Digital FD platforms enable that and more. It gives FD providers and customers the convenience of anytime, anywhere investments. It enables customers to compare and contrast various FD products based on parameters like cost, interest rates, etc.  With easier access to information on investment choices in one place, investors will develop trust factors and enjoy personalized experiences. Customers can now say goodbye to lengthy procedures and tiresome paperwork, as digital tools help capture onboarding and other information without much manual intervention. All these boost seamless customer experience immensely. 

In addition, the digital FD market has the potential to enable a wide array of use cases that range from assisting millennials in getting their financial game running, to enhance the value of investment portfolios for existing customers.  

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