Why investors don’t bank on tax-saving deposits

February 2, 2013:  In 2006, bank deposits held for five or more years were exempt from tax in the hope that this would draw retail investors to park more long-term money with banks. But seven years on, numbers belie the hope. These deposits have not proved a big hit.

The proportion of five-year plus deposits in the fund base of banks has not changed much in these years. Eleven per cent of total bank deposits was parked in five-year plus deposits in 2006. In 2011, the number was barely changed at 12.3 per cent.

Nor have depositors shown any special preference for these deposits — over the short-term ones — because of the tax-break they offer. Between 2006 and 2011, five-year plus deposits registered a 22.6 per cent annual growth, only slightly higher than the 21 per cent growth in the term deposit base of banks.

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