Following a spate of repo price cuts by the RBI in current months, fixed deposits no longer stay as eye-catching as they utilised to be just sometime back. In truth, some of the major public and private sector banks – like the State Bank of India, ICICI Bank and HDFC Bank – have in current months slashed the FD interest prices so a great deal that they now seem to be at par with the interest prices supplied by several banks on their savings bank accounts.
Strangely, interest prices on savings bank accounts, supplied by some smaller sized private sector banks and smaller finance banks, are even larger than the FD prices supplied by the larger private sector banks and PSU banks. However, the interest prices on savings accounts supplied by smaller sized private sector banks and smaller finance banks normally differ, based on the balance kept in them.
Banking professionals say a huge quantity of PSU and private banks are at present supplying interest prices in between 2.5 per cent and 5.5 per cent on their fixed deposits, based on the investment tenure, and up to 6 per cent for senior citizens. On the other hand, some smaller finance banks and smaller sized private sector banks are supplying in between 3 per cent and 7.25 per cent interest prices on their savings accounts. Thus, it can effectively be stated that some savings accounts are at present supplying larger interest prices than the FDs of a huge quantity of banks.
However, just before you rush to place your really hard-earned funds in these higher-yield savings accounts, there is a catch. In most situations, larger interest prices are supplied only on savings account balances inside a particular threshold quantity.
“The interest rates offered on savings accounts by some small finance banks and smaller private sector banks are higher than the FD interest rates offered by public sector banks and major private sector banks. However, such higher interest rates on savings accounts are only offered on savings account balances within a certain threshold amount. Hence, depositors should calculate the average interest income from such savings accounts before choosing between fixed deposits and high yield savings accounts for parking their surpluses,” says Sahil Arora, Director, Paisabazaar.com.
Depositors must also keep in mind that when interest earnings from fixed deposits is taxable as per the tax slab of the investor, Section 80TTA gives a deduction of Rs 10,000 on the interest earnings earned from the savings account.
Hence, deposits in higher yield savings accounts can produce larger post-tax returns than fixed deposits of many banks for these in the larger tax slabs.
“Low-risk investors can spread their savings account deposits across multiple banks offering high yield savings accounts to maximize the benefit of deposit insurance cover offered by DICGC, an RBI subsidiary. As per the deposit insurance program, cumulative bank deposits (including savings, current, fixed and recurring deposits) of up to Rs 5 lakh per customer in each bank are protected, in case of bank failure,” says Arora.
Whatever be the case, if you are keen to place your funds in higher-yield savings accounts, right here are a couple of of them: