Quick Bucks

Dipak Mondal/Money Today        Print Edition: February 2012

The high interest rates on savings accounts that some banks are offering to woo depositors may not be as attractive as they seem. If you, too, are planning to switch loyalty, look at short-term fixed deposits rates and the sweep-in facility offered by your bank before moving to a bank that is offering, say, 7 per cent per year, on savings accounts.

For instance, State Bank of India, City Union Bank, Indian Bank, Uco Bank, J&K Bank and IDBI Bank are offering 6-7 per cent on short-term (seven days to three months) deposits. They are offering up to 7.5 per cent on deposits of as less a tenure as seven days if the amount is below Rs 1 crore. For more than Rs 1 crore, the rate can be as high as 8.5 per cent.

After the Reserve Bank of India recently deregulated the savings bank deposit rate , some banks started offering 6-7 per cent on savings deposits as compared to 4 per cent earlier. These are Yes Bank (7 per cent on daily balance above Rs 1 lakh and 6 per cent on daily balance below Rs 1 lakh), Kotak Mahindra Bank and IndusInd Bank (both are offering 5.5 per cent on balance below Rs 1 lakh and 6 per cent on balance above Rs 1 lakh).

If your existing bank is offering high rates on short-term deposits, you may lock-in your money for 7-14 days instead of shifting to a bank offering high savings deposit rate.

Salil Datar, head, branch banking and NRI business, Dhanlaxmi Bank, says banks are trying many innovations other than increasing rates on savings deposits to keep their customer base intact. "The high short-term rates are mainly aimed at those with large cash in accounts," he says.

How the rates tick
Datar says auto-sweep and sweep-ins are good options for customers with large amounts in savings deposits.

Under sweep-in and auto-sweep, your fixed deposits are linked to your savings/current account. You specify a minimum amount you want to keep in your account. Any amount over this is automatically transferred to your fixed deposit.

If your savings account has insufficient balance for an issued cheque or loan repayment, money will be swept in from the fixed deposit to make up for the deficit.

The amount transferred will earn interest for the period the deposit remains with the bank and the rate that was applicable when the deposit was created. The remaining funds will continue to earn the original high rate of interest. The lock-in period for most sweep-in options is seven days.


Harsh Roongta, chief executive officer, apnapaisa.com, says the benefit of a two percentage point higher rate on savings account is too small for anybody to take the trouble of changing his bank. "If you have Rs 1 lakh average daily balance, a two percentage point higher interest rate will earn Rs 2,000. Is it big enough to merit an account switch?" he asks.


EMIs and ECS linked to your account: Often your loan equated monthly instalments, monthly investments and insurance premiums payments are linked to a particular bank account. If you change, you may have to go through the trouble of linking these to your new account.

Reach and service quality of the bank: Another important factor for choosing a bank is service quality and reach. You want a bank which has branches across the country and which offers all banking services at low fees.

Salary account as primary account: For many people, the salary account is the operating bank account. Salary accounts also do not have the minimum balance requirement.

Minimum balance: Most private sector banks require you to maintain a minimum balance in savings accounts, failure to stick to which may invite a penalty. For instance, Kotak Mahindra Bank's EDGE savings account requires you to maintain a minimum quarterly average balance of Rs 10,000. The bank will charge Rs 750 if the average quarterly balance is above 5,000 but less than Rs 10,000. If the average quarterly balance is less than Rs 5,000, or 50 per cent, the bank will charge a penalty of Rs 1,000.

Yes Bank requires a minimum quarterly average balance of Rs 5,000, failing to maintain which may invite a penalty of Rs 500 per quarter. The minimum monthly balance in a category 'A' branch of IndusInd Bank is Rs 5,000. The non-maintenance fee is Rs 250.


Offering high interest rates on savings bank is a good ploy to acquire new customers for a bank with a low customer base, but those looking to switch banks must take into consideration the cost and hassles of leaving their existing bank for a new one.

Instead of falling for the high interest on savings deposit sales pitch, you should explore the facilities such as high short-term FDs and sweep-in FDs offered by your existing bank.

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