State Bank of India (SBI), the country’s largest lender, cut the interest rate on savings account deposits from 4% to 3.5% per annum.
The bank, in a BSE notification, said the 3.5% per annum interest rate is for deposits up to Rs1 crore in a savings account.
For deposits above Rs1 crore, account holders will continue to earn 4% interest.
From 2011-12 onwards, a majority of the large commercial banks offered an interest rate of 4%.
However, then new banks such as Yes Bank Ltd and Kotak Mahindra Bank Ltd started offering higher interest rates of 6-7%. Even today these banks offer a higher interest rate.
Why did SBI cut its interest rate? The real interest rate is very high right now. In April 2011, interest rate on savings accounts was 3.5% and then there was a negative carry of nearly 5%. And Today, inflation and all other benchmark rates, there is a positive carry of nearly 2.46% on savings bank interest. Real interest being so high, there was no choice for the bank but to bring down the savings account interest rate. So the options were either to raise MCLR (marginal cost of funds-based lending rate) or reduce the savings bank rate.
Financial planners don’t recommend leaving money idle in a savings bank account. If you are under the higher tax brackets, fixed deposit may not work for you. Liquid fund will be a better option.
So instead of leaving your money idle in a bank account, put it to work through other financial products.
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