- Date : 12/07/2017
- Read: 3 mins
Post the repo rate cut by the RBI, banks across the country have now announced that interest rates on savings accounts will be slashed as well.
Following the news of the RBI (Reserve Bank of India) cutting down the repo rate, private and public banks, have now slashed interest rates on savings bank accounts. A fall in the rate of inflation, weak credit offtake and surplus money with banks due to demonetisation were the main factors that led to this decision.
Since October 11, 2016 a majority of banks, except for a few private ones, were offering an interest rate of 4% on savings accounts, which has been further slashed.
Bank of India
Bank of India said that it is considering decreasing savings bank account rates and interest rates on deposits, as per State Bank of India. BOI Executive Director, R S Sankaranarayana, told the Press Trust of India that the rate cut on savings bank account may not happen right away, but it is being considered.
State Bank of India
On July 31, 2017 SBI became the first bank to cut its interest rate on saving account deposits by 50 basis points, meaning it would pay 3.5% on a balance of Rs. 1 crore and below. After this, 11 banks followed suit.
Central Bank of India and Dena Bank:
- On August 21, 2017, both these banks announced reduced interest rates on savings account by 50 basis points.
- While Central Bank of India will pay a 3.5% interest to customers for deposits of up to Rs. 50 lakhs, and Dena Bank will offer same rate on deposits of up to Rs. 25 lakhs.
- Central Bank of India customers with over Rs. 50 lakhs in their savings account will earn 4% interest.
- Dena Bank customers with over Rs. 25 lakh savings will also receive 4% interest.
Related: Understanding your savings account
Punjab National Bank: Public sector lender PNB reduced interest on savings account by 50 basis points. It also reduced interest rates on fixed deposits that are below 1 crore by 15-20 basis points.
For savings bank accounts, a balance of up to Rs 50 lakhs now earns an interest of 3.5% p.a.
HDFC Bank, Union Bank of India, Axis Bank, Yes Bank and Karnataka Bank are among the dozens of lenders to have joined the list of banks who slashed interest rates on savings bank accounts.
What can you do?
- It is important to know the minimum average balance of your bank savings account to avoid any penalties and extra charges. It can be as low as Rs. 1,000 or as high Rs. 10,000.
- Ideally, you should keep only emergency funds in a savings account, and move the rest to other investments which yield high returns.
- You can consider parking your savings in instruments like liquid funds, recurring deposit accounts, ultra-short term Debt Funds, etc., all of which earn higher returns as compared to a savings account. These can be easily liquidated and the liquidation process usually takes just a few days.
How are interest rates on savings account calculated?
As per the RBI rules, interest on a savings account is calculated daily. The interest rate will be uniform on balance of up to Rs. 1 lakh, regardless of the amount in the account, within this limit.
Banks can offer different rates of interest on balance between Rs. 1 lakh and Rs. 50 lakhs, or Rs 1 crore.
The interest is calculated on the balance daily, and is credited to the customer’s account on a quarterly basis. Bank could also choose to credit the interest at shorter intervals.