Comparison between LIC’s Jeevan Akshay VI and Bank’s FD
LIC’s Jeevan Akshay VI is an immediate annuity plan, which means monthly, quarterly, half yearly or year pension will start immediately on deposit of one time single amount. The policy holder can opt for one of the ten options for pension. (Know more about the options).
This plan is similar to Fixed Deposit that is, one single amount has be deposited to avail annuity (pension) while FD provides maturity after a specified term. The main difference between these investments is Fixed Guaranteed Return for Life Time in case of Jeevan Akshay VI and Fixed Guaranteed Return for a Specified Limited Term in case of FD. So, interest rate will help us to understand which plan is better than other.
For comparison purpose, let’s Suppose, A deposits Rs. 10,36,250 in a FD scheme with one year term and B takes Jeevan Akshay plan with Rs. 10,36,250. One year term has been taken because Jeevan Akshay provides annuity or pension. Now corresponding returns after a year in both schemes are calculated below. (Depositor’s age is taken as 50 Years).
FD Interest: Rs. 77,195 compounded quarterly @ 7.25% (SBI rate for 1 year Term). [FD Calculator]
Jeevan Akshay Return: Rs. 74,350 with Option 6 (Annuity for Life with return of purchase price on death).
Above comparison simply proves that FD has higher return by Rs. 2845 in one year, but what will happen if interest of FD is changed to some lower value while LIC policy keeps on providing return at same rate. Let’s talk about possibility of decrement of interest rate of FD.
Following table indicates how SBI has changed its interest on 1 year term deposit (FD) from year 2006 to 2015.
Year | Maximum of the Year | Minimum of the Year | ||
---|---|---|---|---|
Interest Rate (%) | Change Date | Interest Rate (%) | Change Date | |
2006 | 7.50 | 11-Dec-06 | 6.00 | 09-Jan-06 |
2007 | 8.25 | 17-Dec-07 | 8.00 | 09-Aug-07 |
2008 | 10.00 | 16-Aug-08 | 8.75 | 01-Jun-08 |
2009 | 8.50 | 01-Jan-09 | 6.00 | 09-Nov-09 |
2010 | 7.75 | 20-Dec-10 | 6.75 | 17-Aug-10 |
2011 | 9.25 | 13-Aug-11 | 9.25 | 03-Jan-11 |
2012 | 9.25 | 28-Mar-12 | 8.50 | 07-Sep-13 |
2013 | 9.00 | 01-Nov-13 | 8.75 | 01-Mar-13 |
2014 | 9.00 | 18-Jul-14 | 8.50 | 12-Dec-14 |
2015 | 8.26 | 10-Apr-15 | 7.25 | 05-Oct-15 |
Interest Rates of developed economies are close to zero and even there are countries where depositors pay to bank to keep their money. Interest rate in developing countries across the globe is on the declining track. Central Banks of various countries (like RBI in India) who decide interest rate and banks within that country follow to change their interest rate accordingly.
Following table shows the interest rates of Central Banks of major economies.
S .No. | Countries | Interest Rate (%) | S .No. | Countries | Interest Rate (%) |
---|---|---|---|---|---|
1 |
Switzerland |
-0.750 |
10 |
Australia |
2.000 |
2 |
Sweden |
-0.350 |
11 |
New Zealand |
2.500 |
3 |
Europe |
0.050 |
12 |
China |
4.350 |
4 |
Japan |
0.100 |
13 |
South Africa |
6.250 |
5 |
Israel |
0.100 |
14 |
India |
6.750 |
6 |
United States |
0.500 |
15 |
Turkey |
7.500 |
7 |
Great Britain |
0.500 |
16 |
Indonesia |
7.500 |
8 |
Canada |
0.500 |
17 |
Russia |
11.000 |
9 |
South Korea |
1.500 |
18 |
Brazil |
14.250 |
As we can see in the above table, India has higher interest rate and as our economy grows, interest rate is expected to come down and that will force banks in country to lower interest rate on customers’ deposits like FD and RD. if the rate comes below 7% and keeps decreasing in the future, then Jeevan Akshay VI will be definitely a better option which provides guaranteed return at same rate for life time.
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