Page 57 - Banking Finance August 2025

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Truth behind FD with 'free insurance'

N othing says "safe" like a fixed deposit. But in a world cases, the insurance cover is valid only for the first year.
Renewals? Not the bank's responsibility. If you extend the
where financial products are being aggressively
repackaged, even the staid FD is getting a facelift,
with free life or health insurance thrown in. Sounds like a FD or let it roll over, the insurance benefit disappears.
win for depositors. But free, as always, comes with fine Premature withdrawal? The cover vanishes. Some
print. And the real price may not show up in your returns, banks cancel it entirely if you withdraw more than 50 per
but in what you unknowingly give up. cent of your original principal. You may also be ineligible
for recovering the same FD under the same scheme again,
In recent months, banks have launched or, in some cases, even if you rebook it. Then there's the opportunity cost.
revived FD products that come bundled with insurance.
Health, life, accident: take your pick. These bundled The interest rate offered on these bundled FDs is usually the
offerings target affluent retail depositors by promising card rate, without any special topup for locking in a larger
protection alongside returns. This is especially true if you sum. In effect, while the headline rate might seem
park a sizeable sum for a year or more. competitive, you're not being rewarded with a higher yield.
Instead, you're getting insurance that's been costed in
One such offering, launched just a few days ago, provides a elsewhere.
Rs. 5 lakh super topup health cover with a 375day deposit
of Rs. 10 lakh or more. Similar products in the past launched Cost of 'Free'
by other private sector and public sector banks have
While the insurance premium is technically paid by the bank,
included hospital cash payouts, critical illness coverage and
it isn't done out of goodwill. Most banks work out group
term life insurance. On paper, it all looks generous. But
scratch beneath, and it's clear the real beneficiary may not insurance tieups with health or life insurers. Here the cost
per depositor is negotiated at volume discounts. The bank
always be the depositor.
bears this cost, but offsets it in other ways: the absence of
Value and Trade-offs a higher FD rate, restrictions on withdrawal, or other fees.
To be fair, the FD with complimentary/free insurance appeal
Some products include lifestyle debit cards bundled into the
is obvious. The depositor sees an FD offering the usual
interest rate, plus a health or life insurance cover and offering, with charges of Rs. 400-500 or more per year.
Others require maintaining a certain account balance to
assumes it's an added bonus. There's no visible premium,
continue holding associated perks. The depositor may not
no separate policy document to pay for. In that sense, it feels
like a freebie. pay upfront for the insurance, but does so indirectly -
through loss of flexibility, hidden charges or suboptimal
But that perceived value comes with tradeoffs. In most yields.

BANKING FINANCE | AUGUST | 2025 | 51