Banks are cutting Interest Rates, What to do Now?

In recent past, you might have seen that majority of banks, be it a Public Sector Bank or Private Sector Bank, have cut the interest rate on savings account by 50 basis points i.e. from 4% to 3.50%. This step has initially been taken by India's largest Public Sector Bank "State Bank of India" which reduces its interest from 4% p.a. to 3.50% p.a. with effect from Sep 1, 2017. After that other banks also follow suit. The impact of this rate cut will be that the idle money kept in this account will earn less return than before.

One needs to know that the Reserve Bank of India (RBI) had deregulated interest rates on savings bank accounts from October 2011. After that all the banks are free to set the interest rates on their savings account as they feel proper.

The primary reasons behind this step by the banks are the decline in the rate of inflation and high real interest rates, due to which the banks had to revise the rate of interest on their savings account. Here, real interest rate is the interest rate received after adjusting inflation.

Usually, majority of us keep our money with the savings accounts for most of the times and don't in fact bother about its returns. Now as the banks are cutting interest rates, what to do now? This is a simple question that arises in your mind. There are few things to pay attention in order to earn good returns on your hard earned money.

Points need to be followed in order to earn more:

• Optimise the money deposited with your savings account
• One must try to keep only emergency fund in the savings account
• One should move the balance amount in excess to emergency fund to liquid mutual fund or others offering higher returns
• Shift your savings account to newer banks who are offering more rates on savings account in order to gain market share
• Open an account under Multi Option Deposit Scheme which is a fixed deposit/ term deposit scheme that is linked to your savings account and will give you interest of FD on your savings account

If you keep in mind above points, you would definitely get benefited & even if you keep a large sum of money in your savings account, you will earn much better returns as newer banks like small finance banks, payments banks and some private banks like RBL bank or Yes bank are offering much higher interest rate in the range of 6% to 7%.

Interested to know Why you should not keep All Your Money in Banks Savings Account?

Share This : Anupama is a Co-Founder of CodeForBanks.com. She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.