Highest Savings Bank Account Interest Rates in India
|March 16, 2012||Posted by John Border under Saving Bank Interest Rate|
I am sure lot of us would now have seen those ads from Kotak Mahindra Bank and YES bank about the high savings interest rates. Now for those who are unaware about this deregulation should know that this happened on 25th Oct , 2011 where RBI deregulated the savings accounts interest rates.
What exactly does mean to you when you say deregulation.
Earlier there was a cap of 4% that the banks could pay as interest for the savings accounts. Current accounts typically do not pay any interest. Now since Oct 25th last year banks are free to give a rate of interest as they deem fit.
Also, there are only two categories which are allowed by RBI which is interest rates for people who amount below 1 lakh in their saving account and banks can decide another rate for people who have more than 1 lakh in their saving accounts. Banks cannot have any other slabs than this.
So which are the banks which are paying high interest rates. Here are the banks that have initiated the move to high interest rates.
Yes Bank 6.0% to 7.0%( above Rs. 1 lakh)
Indus Ind Bank 5.5% to 6.0%( above Rs. 1 lakh)
Kotak 5.5% to 6.0%( above Rs. 1 lakh)
Is it beneficial for banks?
I would argue as no however again each bank has its own strategy but let us understand how the banks work. Typically banks will use the low interest savings accounts and current accounts money to lend to businesses and then make money with the interest rate differential. In the deregulate environment these banks were happy with low rates as then they get very low cost of funds which they can lend at higher rates. That way they make good money on the interest rate difference.
Now with let us say Yes bank paying high 7% I would tend to think that either they are charging more rate of interest for the loans they extend or they are taking a hit on their margins. I would think the latter. That is because it would be tough to get more money from the loans as there is tough competition from other banks. They are taking a hit on their margins and they are initially using this high savings accounts interest rates as a tool to acquire a whole new set of customers.
In fact, I am tempted to now move some of my funds to YES bank. A very good offer indeed for retail customers of the bank.