Floating Savings Rate: Does it mean Higher Returns?

May 5, 2011     Posted under: Investment

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As per the recent development it does seems that savings account will fetch higher returns. Although hike in rate will have effects on loan lending but at least it will benefit the saving account.

What is Savings Deposit?

It is hybrid product that combines the features of both current accounts (meant for transaction purposes) and term deposit accounts. One can withdraw money from a savings account at any time and a fixed interest rate is paid on the average balance maintained in the account.

What rate does the bank offer?

Till Monday (2nd May 2011), banks offered 3.5%. But on Tuesday the Reserve Bank of India increased the rate by 50 basis points (100 basis points = 1 percentage point) to 4%. This decision was taken keeping in view the growing disparity between savings deposit rate and term deposit rates.

How has yield on savings account changed over time?

The interest rate on savings deposits was fixed at a high of 6% per annum in April 1992. Since then RBI brought this rate down on several occasions, to 3.5% reached in March 2003. It has stayed at that level since.

What is the way forward?

The central bank came out with its discussion paper on deregulation of savings deposit rate last Thursday. This proposes that banks will offer a market determined rate, which will eventually lead to the banks competing among themselves and offering higher rate of interests to attract customers.

What is the state of savings deposit in India?

As of March 2009, Rs 896,301 crore was the total amount of money with banks in saving bank deposits. Of this, 83.6% was the contribution of the household sector.

NitiN Kumar Jain

Nitin works in an IT MNC professionally but blogs and owns NKJ Live. He is also the co-owner of a professional start-up ARGHAM BYTES

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