In my earlier posts I have informed the readers that the deregulation of the savings banks account is in the progress. The intention of setting the savings bank interest rates by the banks itself would intensify the competition among the banks and the interest rates would go up. It will be beneficial to the customers. In this article I will write about the prior changes on the interest rates and what is the current situation after the changes announced by RBI. Subscribe to our future articles here.
History of Savings Bank Interest Rates
- Prior to this change, banks must pay the 4.0% interest for all their savings bank customers. This is same for all the banks. It means that interest rates for the savings bank accounts are regulated by the Reserve Bank of India (RBI) and banks must follow that. This change happened only less than a year.
- The interest rate for the savings bank account was 3.5% for long time and recently only it has been increased to the 4.0%. Also, there was changes in the how the interest rates are calculated. First 10 days of the balance will not be taken for the calculation, also in the remaining days only the minimum balance will be taken for the interest rates calculation. This would result in very less benefit to the customers.
- Prior to making 4.0%, RBI has changed to the daily balance calculation for interest rates of 3.5%.
Deregulation of interest rates
- Effective 25 October, RBI has explicitly sent notification to the banks for changing their savings bank interest rates. Simply, banks are free t0 set their interest rates for their customers. Till now they are compulsory to pay 4.0%.
- The RBI has told banks to pay a uniform rate to all customers having savings account balance of up to Rs 1 lakh. For balances above Rs 1 lakh, banks are free to choose interest rate bands.
- This would benefit the salary bank account holders who maintain the lump sum amount in the saving bank account.
Updated interest rates by banks
However, not all the banks would increase the interest rates immediately. India’s largest bank State bank of India (SBI) has announced that they would not revise the interest rates immediately and it would affect the profitability of the bank. The following are the few banks that has revised the interest rates:
Kodak Mahindra Bank, Yes Bank and IndusInd Bank has set the interest rates as 6% per annum for balances above R1 lakh and 5.5% for deposits less than Rs 1 lakh.
It is good move by RBI to benefit the customers. Another problem would arise is, banks would start feeling the more expenses and would increase the fees for other services. As per the record, thousands of crores are lying on the savings bank account, now banks has to pay the extra interest for that money. It would result in the more expenses for the bank. However, it is good for the customers to choose the bank which is offering the good interest rates.
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