Bangalore: Though the Reserve bank of India has taken several steps to increase transparency in banking sector, many banks still continue to practice it vaguely when it comes to interest paid on fixed deposits (FDs), reports Narendra Nathan of ET Bureau.

Most of the bank’s FD pamphlets consist of two columns for interest rates and annualised yield (which is stated as, “annualised yield is calculated on the basis of quarterly compounding for the entire tenure"). When it comes to annualised yield, the bank will not stick to the procedure printed. Usually, what banks do is, they will give the borrower annualised yield, but with much lesser interest rates. They bring in deeper calculations that are not informed to the borrower in advance and come up with lesser interest rates.

Apparently, when you asked bank officials to explain the reason for the low interest rate, you will get to know that the bank has projected a simple interest and not the compound annual growth rate. However, CAGR is the best way to evaluate the return rates between the two financial products. So it’s better to read through all the instructions before borrowing any kind of loan from bank.

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