Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Think Twice Before You Keep Money In A Savings Bank Account - Outside View by PersonalFN
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Think Twice Before You Keep Money In A Savings Bank Account
Aug 22, 2017

Post demonetisation, a cut in bank savings deposits rates was in the offing.

Regular readers will recollect an article PersonalFN published in December 2016 - Why Interest Rates On Your Savings A/c Will Be Lowered. SBI Chairman, Arundhati Bhattacharya, had highlighted at the time that 30%-40% of the money coming into savings bank accounts may not flow back out. The additional liquidity, leading to a higher cost of funds, will prompt bankers to cut the savings deposit rate, she had cautioned.

That's why on July 31, 2017, when the country's largest commercial bank, the State Bank of India, cut savings bank deposit rates by 50 basis points (bps) to 3.50%, it did not surprise us. Since then, other banks too, reduced their rates to the same extent. And in the days to come, perhaps many more will soon jump on the bandwagon.

With a fall in interest rates and low inflation, it was natural for banks to cut deposit rates, however, what caught our attention were the conditions imposed by the banks.

Most banks introduced a slab structure for savings deposit rates.

For example, SBI has cut rates only for deposits up to Rs 1 crore. Deposits of Rs 1 crore and above lying in a SBI savings account will continue to earn an interest of 4% as before. Similarly, Axis Bank and Bank of Baroda reduced the rate to 3.50% for deposits of up to Rs 50 lakh.

Karnataka Bank, took the rate structure to another extreme. The Bank introduced four slabs, increasing rates for deposits above Rs 1 crore, while reducing rates for deposits less than Rs 50 lakh. Earlier, the bank offered 4% on all deposits, now they have introduced slabs as below -

Deposit Slab Interest Rate
Upto & including Rs.1 lakh 3%
Rs.1 lakh - Rs.50 lakh 3.5%
Rs.50 lakh - Rs.100 lakh 4%
Above Rs.100 lakh 5%
(Source: www.karnatakabank.com, PersonalFN Research)

Barring a few banks that paid a savings interest rate of upto 6% on deposits, a structure for savings deposit rates was practically unheard of. There were no slabs earlier and all individuals, irrespective of whether they had a deposit of Rs 10,000 or Rs 1 crore, earned the same interest rate of 4%.

With the new rate structure, it becomes clear that high net worth individuals will remain unaffected or even benefit (if they have an account with Karnataka Bank), while the middle class, the bulk of those who have deposits worth a few lakhs, will earn a lower rate on their savings.

What are your alternatives?

Whether it's a contingency fund or money kept for near-term expenses, we all keep a sizable amount of cash in a bank savings accounts. The alternatives to park short-term funds are few. One can choose from arbitrage funds, liquids funds or the favourite of all savers, a savings bank account. PersonalFN has compared these avenues in the article - Arbitrage Funds vs. Liquid Funds vs. Savings Bank A/C: How to Park Your Short-Term Funds. It will give you insights into each avenue, so you can make an informed decision.

For immediate liquidity needs, a savings bank account is the clear winner. However, the low interest rates and tax liability is a major disadvantage.

Though arbitrage schemes are the most tax-efficient, returns will depend on market conditions and the fund managers ability to reap rewards from mispricing of securities. Thus, the returns may be inconsistent.

This leaves us with liquid funds. A liquid fund may turn out to be more tax-efficient than a savings account, especially if you are setting aside money for a contingency. These funds earn a higher return and are less volatile. Instant liquidity is the only issue. Redemption may take up to three working days to be credited to your bank account. However, some fund houses have addressed this issue, offering instant liquidity for certain liquid funds they manage.

Under the instant redemption facility, it takes under 30 minutes to transfer the redemption amount to your bank account. Some of the key features of the facility are highlighted below:

  • Uses the Immediate Payment Service (IMPS) provided by various banks
  • You will receive the funds in your bank account in less than 30 minutes
  • You can withdraw Rs 50,000 a day or 90% of your folio's value, whichever is lower.
  • This facility is available 365 days, 24x7

In April 2017, at its board meeting, the Securities and Exchange Board of India (SEBI) allowed liquid funds to offer instant redemption facility and laid out certain conditions. While this is still to be implemented industry-wide, many funds houses have started offering this facility to their investors.

Thus, liquid funds can prove more rewarding and tax efficient. But you ought to take enough care when selecting winning schemes for your investment portfolio, because debt funds aren't risk-free.

If you need research backed recommendations to select the best debt mutual fund schemes for your portfolio, opt for PersonalFN's DebtSelect research reports. Our superlative guidance will certainly help you on the path to wealth creation You can be rest assured about the ethical and unbiased nature of this service.

Better still, you can access 7 high-performing, time-tested readymade portfolios with a decade-long market-beating track record. PersonalFN's model mutual fund portfolio service 'FundSelect Plus' has completed a decade and we are offering subscriptions at a massive 75% discount!

Apart from four equity-oriented portfolios, you get access to three readymade debt mutual portfolios. The debt portfolios have been formulated using the investment tenure as the cornerstone. Depending on your investment horizon - less than 3 months or 3-12 months or more than 12 months, you can choose the portfolio of your choice. PersonalFN's track record speaks for itself, as all three portfolios have comfortably beaten their respective benchmarks. Don't miss the Special Anniversary Discount. Subscribe now!

Also, while you invest, pay heed to your asset allocation as you vie to achieve your long-term financial goals. For assistance to formulate the perfect asset allocation as you walk the path to wealth creation or rebalancing your investment portfolio, don't hesitate to avail of PersonalFN's comprehensive financial planning service.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Think Twice Before You Keep Money In A Savings Bank Account". Click here!

1 Responses to "Think Twice Before You Keep Money In A Savings Bank Account"

Sameer Tiwari

Aug 24, 2017


This is good article , giving valuable information about better options to savings account.
When I am trying to click the link "Better still, you can access 7 high-performing, time-tested readymade portfolios with a decade-long market-beating track record. PersonalFN's model mutual fund portfolio service 'FundSelect Plus' has completed a decade and we are offering subscriptions at a massive 75% discount!" Its not working and going on the blank page. I was trying to subscribe but link doesnt work. Please sort this out and send me a working link.


Equitymaster requests your view! Post a comment on "Think Twice Before You Keep Money In A Savings Bank Account". Click here!

More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

Best Mutual Fund Schemes Of SBI Mutual Fund: Keep A Long Term Focus (Outside View)

Jan 19, 2018

PersonalFN brings to you some of the best mutual fund schemes of SBI Mutual Fund.

An "Extreme Warning" From Our Doom Index (Vivek Kaul's Diary)

Jan 19, 2018

When we left you yesterday, we were describing why the situation is getting dangerous for investors.

This is Why the Crypto Correction is a Good Thing (Smart Contrarian)

Jan 19, 2018

Corrections force discipline on an otherwise broadly unsophisticated market. And that's only a good thing in the long run.

More Views on News

Most Popular

Retail Investors or Chickens Waiting to Get Slaughtered in the Stock Market?(Vivek Kaul's Diary)

Jan 9, 2018

The price to earnings ratio of the Nifty 50 is very close to all-time high levels.

The ONLY Thing You Need to Know About Bitcoin(The 5 Minute Wrapup)

Jan 6, 2018

You either want it or you want to get as far away from it as possible - but Bitcoin is just the noise masking the REAL opportunity. Read about it here...

Best ELSS Funds In 2018: Don't Blindly Chase Top Performers(Outside View)

Jan 10, 2018

As the tax-saving season begins, investors hunt for the best ELSS funds for 2018. PersonalFN provides a list of the top ELSS mutual funds of the past year.

Bitcoin Beginners Should Do These Three Things...(Smart Contrarian)

Jan 10, 2018

Three simple points to keep in mind before you consider buying bitcoin.

Resolutions for 2018 - by others(The Honest Truth)

Jan 8, 2018

Ten quirky new year resolutions. Guess by whom?


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 19, 2018 (Close)