ICICI Bank, Union Bank of India and Punjab National Bank (PNB) have been the latest to cut their interest on savings account. A few days back Yes Bank, Axis Bank, HDFC Bank, Indian Bank, Karnataka Bank and Bank of Baroda had already reduced their interest rates.
This all started with SBI slashing interest rates on savings account to 3.5% on July 31 for balance less than Rs 50 Lakh. We expected similar cuts from the well established big banks and in all 10 banks have lowered their interest rates on savings account since then.
Reserve Bank of India (RBI) had deregulated the interest rate offered on Savings Account by banks in October 2011. It was expected then that a lot of banks would compete for this and offer competitive rates. But unfortunately there were just handful banks which offered higher interest rates while now every bank is ready to reduce the rates below 4%.
The highest Saving Account interest rate is being offered by digibank by DBS at 7% for balance up to Rs 1 lakh.
Following 7 banks offer 6% interest on their savings bank account on different balances: Bandhan Bank, digibank by DBS, Indus Ind Bank, Kotak Mahindra Bank, Lakshmi Vilas Bank, The Ratnakar Bank and Yes Bank.
Also Read: Highest Interest Rate on Bank Fixed Deposits
All other banks are still offering 4% irrespective of the balance.
The table below shows the interest rate offered by banks on its saving account.
|Bank||Savings Account Interest Rate|
|Airtel Payment Bank|
|digibank by DBS|
|Equitas Small Finance Bank|
|Indus Ind Bank|
|Kotak Mahindra Bank|
|Lakshmi Vilas Bank|
|The Ratnakar Bank|
|SBI (State Bank of India)|
|Bank of Baroda / Axis Bank/ ICICI Bank/ HDFC Bank/ Punjab National Bank/ Indian Bank/ Canara Bank/ Standard Charted Bank/ Andhra Bank|
|Union Bank of India|
|All other Banks|
Updated on August 19, 2017
The interest is generally paid at every calendar quarter on 30th June, 30th September, 31st December and 31st March.
Interest is calculated on daily basis, basis the end of day ledger balance in the account.
Additional Interest: If you keep 1 Lakh in your savings account, at 4% you would get Rs 333.33 as interest per month while with 7% you would get Rs 583.33. So you would earn additional Rs. 250 per lakh per month.
Tax Efficient: Also in Budget 2012 Finance Minister had exempted interest income up to Rs 10,000 from Savings Account every financial year under section 80TTA. So there would be situations where people in higher tax bracket would be better off by putting money in Savings Account than doing Fixed Deposit.
Also Read: 22 Hidden Charges in Saving Bank Account
Should You Get New bank Account?
The next question is should you go to these banks to get benefit of enhanced interest rates on savings account?
The answer depends on a few factors namely:
1. How much money do you keep in your savings bank account?
If you are someone who has a large balance in savings account you might want to opt for accounts offering higher interest rates. For everyone with not very significant balance an additional account does not make sense.
2. Do you want to pay charges associated with the new savings account?
Even if you have higher balance in your account, do you want to get an additional account and keep a track of all the new charges banks impose on accounts. Also you’ll need to maintain minimum balance.
3. Your Tax Bracket?
If you are in 30% tax bracket then it makes sense to have some money in savings account yielding higher interest rates than rush for short term Fixed Deposit.
Most banks offer sweep in facility where the amount in excess of pre specified automatically goes into fixed deposit. So you might take advantage of the same rather than going for a new account. But remember the interest earned in sweep in account is fully taxable as your interest income from fixed deposit.