Keeping your money in a savings account will fetch you more interest than locking it up in a fixed deposit

Keeping your money in a savings account will fetch you more interest than locking it up in a fixed deposit
People can earn more interest by keeping their money in a savings account then making an fixed depositUnsplash

  • Savings rates offer higher returns than fixed deposits (FDs) as banks continue to slash FD interest rates.
  • This includes India’s largest bank, the State Bank of India (SBI) and the country’s biggest private lender, HDFC Bank.
  • Interest rates on FDs are at a 17-year low making it worth your while to keep your funds as-in in your savings bank account.
Fixed deposits (FDs) are normally considered to be a safe haven for your money to rake up some extra interest on your savings. But the advantage of locking up your savings in FDs has all but disappeared. In fact, keeping your money as-is in a savings account will actually get you higher interest than locking it up in an FD.

Banks are slashing interest rates on FDs — including India’s biggest bank, the State Bank of India (SBI) and India’s largest private lender, HDFC Bank. In fact, interest rates on FDs have plunged to a 17-year low.

This stems from the fact that the Reserve Bank of India (RBI) has been slashing its repo rate — the rate at which banks can earn interest on their stashed deposit with the central bank. Because the repo rate’s been cut, the deposit rates have plummeted as banks pass on the burden.

Banks offering higher savings rate than FD interest rates:
BankSavings rateFD interest rate
SBI3.80% to 6.50%3.30% to 5.70%
HDFC Bank3.50% to 6.50%3.00% to 6.00%
Kotak Mahindra Bank3.50% to 5.50%3.00% to 5.00%
Axis Bank3.50% to 6.60%3.50% to 6.10%
Punjab National Bank4.00% to 6.25%3.50% to 5.75%
Canara Bank4.00% to 6.20%4.00% to 5.70%
ICICI Bank3.75% to 6.25%3.25% to 5.75%
Bank of Baroda4.00% to 6.20%3.50% to 5.70%
IDFC Bank4.50% to 7.75%4.00% to 7.25%
Bank of India4.50% to 6.30%4.00% to 5.80%

Savings may take another hit
The actual amount of money that people are putting into the banks has been increasing as spending opportunities shrink under the ongoing coronavirus pandemic. For the fiscal year ending in March 2020, deposit growth fell to around 8%. However, this financial year, deposits have grown by 1.9% in the first two months — before starting to fall again are lockdown relaxations came into play.

Before the pandemic, the picture was not quite as rosy. In FY19, household savings fell to 18% as compared to 23% in 2012, according to the Central Statistics Office (CSO) — a drop of around 5%.

Cutting down on FD rates and keeping them there even after the economy opens up is a good way to keep money flowing and liquid funds in the hands of consumers — but it’s not so good for generating savings.

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