The savings account rate is at its lowest in six years, which is directly affecting small savers.
Latest entrant in the list of banks reducing rates is Canara Bank. On Friday, the bank cut the interest rate of savings bank account by 50 basis points or 0.35% on deposits up to Rs 50 lakh. Though the bank will continue to pay 4% interest on deposits of above Rs 50 lakh.
Savings account, which is considered as the most basic financial product, has become a new “tool” for the banks to reduce liquidity post demonetisation period. It is best suited for salaried employees or people with a monthly income.
Till now, savings account was earning interests in the range of 4-8%. Now, it has reduced to the range of 3.5%-5%. In case of savings account, it becomes a better option if the interest rate is high.
Like usual, the trend of reducing savings account rate was started by India’s largest bank in terms of assets, State Bank of India. On July 31, the bank had slashed the pricing for under Rs 1 crore saving deposits by 0.50% to 3.5%. After which, major banks, HDFC Bank, ICICI Bank, Axis Bank and five other banks followed the trend.
However, while the other banks wants to be in the race, one private which has become a favourite choice of small savers is Kotak Mahindra Bank.
On August 3, Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank had tweeted, “Borrowers matter, so do savers”. This was when they decided to keep its savings account rate at 6%.
The bank offers 5% interest on SB deposits up to Rs 1 lakh; 6% on deposits above Rs 1 lakh and up to Rs 5 crore; and 5.5% on deposits above Rs 5 crore.
Since then, the bank started promoting its savings account rate with a tagline, “Why just earn 3.5% p.a? Earn up to 6% interest p.a.with Kotak Savings account”.
Apart from Kotak Mahindra Bank, there are two more banks which are offering high interest rates. Yes Bank is offering 5% interest rate on balance upto Rs 1 lakh, 6% on balance above Rs 1 lakh and for over Rs 1 crore.
Another is Lakshmi Vilas Bank, which is offering 4% on deposits up to Rs 1 lakh; 5% on deposits above Rs 1 lakh and up to Rs 5 lakh; 6% on deposits above Rs 5 lakh; 6.50% on balances above Rs 10 crore.
Further, while the savings account is no more a favorable option, the small savers can still opt for any low-risk small savings instruments like Kisan Vikas Patra, National Savings Certificate, Sukanya Samriddhi Account, Public Provident Fund, Payments bank, Employee provident funds, which are offering up to 8.65% returns.