Monday, June 23, 2014

Bank Shares Vs Bank FDs

Banks are giving your money at higher interest to others as loan. To elaborate, when you put Fd in any of the bank, they lend some of your money to certain retail or corporate. For example you are doing an fd at 8%, bank pays you fix rate of 8% and against that they lend the same money in housing loan / personal loan/ car loan / mortgages etc.,

The interest rates are approx 9% to 22%, depending upon the nature of loan.

So if you calculate, banks are paying 8% on fd and lending the money at 12-15%. The spread after expenses or after taxes will add to the balance sheet profit  for the bank and the same reflects in the bank share prices sooner or later. I know it is not at all fixed, but the example is here with us, HDFC Bank has grown 30% quarter on quarter since many years, now also its growth is approx 25% qoq,

This simply says that banks are making money on your money?

Don't you think ? Its advisable to invest in Bank Stocks rather than putting an FD in the same Bank ?