Stashing cash in savings account? CA warns of big annual losses due to inflation; check details
Parking all your money in a savings account might feel secure, but it’s quietly draining your wealth, warns CA Nitin Kaushik. With inflation outpacing low bank interest rates, savers risk losing thousands of rupees every year.
- Jun 27, 2025,
- Updated Jun 27, 2025 4:21 PM IST
Millions of Indians who continue to stash all their money in regular savings accounts may be quietly eroding their wealth without even realising it, cautions CA Nitin Kaushik, a chartered accountant and personal finance expert.
“People often feel safest leaving funds in a savings account, but the reality is, your so-called ‘safe’ money is silently losing value each day because of inflation,” Kaushik said in a post on X.
Savings accounts in most Indian banks currently yield a modest interest rate between 2.5% and 3.5%. Meanwhile, the country’s inflation rate has hovered around 6% to 7% in recent years. This means the purchasing power of money parked solely in savings accounts diminishes steadily over time.
“To illustrate, if you’ve got Rs 1,00,000 sitting idle in a savings account, you’re effectively losing Rs 3,000 to Rs 4,000 every year in real terms,” Kaushik explained. “It’s a dangerous illusion of security because your money isn’t growing—it’s actually shrinking.”
Kaushik urges individuals to rethink how they handle surplus cash, advising savers to explore alternatives that offer better returns while still maintaining liquidity and safety.
Recently, in response to the Reserve Bank of India's decision to reduce the repo rate by 50 basis points, leading banks have adjusted their savings account interest rates accordingly. The State Bank of India (SBI), the largest lender in the country, has implemented a flat rate of 2.5% per annum for all balances, effective June 15, 2025. Following suit, HDFC Bank and ICICI Bank have also set a uniform interest rate of 2.75% and made the change effective June 10 and June 12, respectively.
Investing in Sweep FDs and Liquid Funds
One such alternative is sweep-in fixed deposits (FDs). “A sweep-in FD links your savings account to a fixed deposit, ensuring your idle cash earns a higher rate of return,” Kaushik said. “Whenever your account balance exceeds a certain limit, the extra funds automatically move into a fixed deposit, where they typically earn 6% to 7.5% interest instead of the 2.5% to 3.5% offered by a regular savings account.”
The key advantage of sweep-in FDs, according to Kaushik, is that funds remain accessible. “If your account dips below the threshold, the bank withdraws only the required amount from your FD, leaving the rest untouched. This allows you to maintain liquidity while benefiting from higher interest rates,” he explained.
Another effective option for short-term surplus funds is liquid mutual funds. “Liquid funds are a middle path between savings accounts and traditional FDs,” Kaushik said. “They generally offer better flexibility and yields without sacrificing safety.”
Data underscores their appeal: over the past one and three years, liquid funds have delivered average annualised returns of 7.3% and 7%, respectively. As of 29 May 2025, one-year returns stood at 7%, while the two-year compounded annual growth rate (CAGR) was about 6.8%.
Liquid funds are open-ended debt mutual funds whose primary goal is capital preservation and liquidity. They invest money in instruments like Treasury bills (T-bills), call money, repurchase agreements, short-term government debt, certificates of deposit (CDs), commercial papers (CPs), and term deposits.
“These underlying securities carry minimal interest rate risk and low credit risk,” Kaushik noted. “Compared to other categories of mutual funds, liquid funds are among the safest.”
Their performance is often benchmarked against indices such as the CRISIL Liquid Debt Index and the CRISIL 1-Year T-Bill Index. Liquid funds are designed to act as a short-term parking solution for surplus funds while delivering reasonable returns.
“Because liquid funds invest in high-credit-quality instruments with very short maturities, the risk of default or capital loss is significantly reduced,” Kaushik explained. “These funds prioritise safety and liquidity over chasing high returns.”
However, Kaushik clarified that investors shouldn’t expect liquid funds to generate extraordinary profits. “The main objective of a liquid fund is preserving capital, not delivering huge gains,” he said.
Kaushik advises savers to move beyond simply parking money in a low-yield savings account. “At the end of the day, it’s about making your money work harder,” he concluded. “A few smart moves can help you beat inflation and ensure your wealth grows instead of quietly diminishing.”
Millions of Indians who continue to stash all their money in regular savings accounts may be quietly eroding their wealth without even realising it, cautions CA Nitin Kaushik, a chartered accountant and personal finance expert.
“People often feel safest leaving funds in a savings account, but the reality is, your so-called ‘safe’ money is silently losing value each day because of inflation,” Kaushik said in a post on X.
Savings accounts in most Indian banks currently yield a modest interest rate between 2.5% and 3.5%. Meanwhile, the country’s inflation rate has hovered around 6% to 7% in recent years. This means the purchasing power of money parked solely in savings accounts diminishes steadily over time.
“To illustrate, if you’ve got Rs 1,00,000 sitting idle in a savings account, you’re effectively losing Rs 3,000 to Rs 4,000 every year in real terms,” Kaushik explained. “It’s a dangerous illusion of security because your money isn’t growing—it’s actually shrinking.”
Kaushik urges individuals to rethink how they handle surplus cash, advising savers to explore alternatives that offer better returns while still maintaining liquidity and safety.
Recently, in response to the Reserve Bank of India's decision to reduce the repo rate by 50 basis points, leading banks have adjusted their savings account interest rates accordingly. The State Bank of India (SBI), the largest lender in the country, has implemented a flat rate of 2.5% per annum for all balances, effective June 15, 2025. Following suit, HDFC Bank and ICICI Bank have also set a uniform interest rate of 2.75% and made the change effective June 10 and June 12, respectively.
Investing in Sweep FDs and Liquid Funds
One such alternative is sweep-in fixed deposits (FDs). “A sweep-in FD links your savings account to a fixed deposit, ensuring your idle cash earns a higher rate of return,” Kaushik said. “Whenever your account balance exceeds a certain limit, the extra funds automatically move into a fixed deposit, where they typically earn 6% to 7.5% interest instead of the 2.5% to 3.5% offered by a regular savings account.”
The key advantage of sweep-in FDs, according to Kaushik, is that funds remain accessible. “If your account dips below the threshold, the bank withdraws only the required amount from your FD, leaving the rest untouched. This allows you to maintain liquidity while benefiting from higher interest rates,” he explained.
Another effective option for short-term surplus funds is liquid mutual funds. “Liquid funds are a middle path between savings accounts and traditional FDs,” Kaushik said. “They generally offer better flexibility and yields without sacrificing safety.”
Data underscores their appeal: over the past one and three years, liquid funds have delivered average annualised returns of 7.3% and 7%, respectively. As of 29 May 2025, one-year returns stood at 7%, while the two-year compounded annual growth rate (CAGR) was about 6.8%.
Liquid funds are open-ended debt mutual funds whose primary goal is capital preservation and liquidity. They invest money in instruments like Treasury bills (T-bills), call money, repurchase agreements, short-term government debt, certificates of deposit (CDs), commercial papers (CPs), and term deposits.
“These underlying securities carry minimal interest rate risk and low credit risk,” Kaushik noted. “Compared to other categories of mutual funds, liquid funds are among the safest.”
Their performance is often benchmarked against indices such as the CRISIL Liquid Debt Index and the CRISIL 1-Year T-Bill Index. Liquid funds are designed to act as a short-term parking solution for surplus funds while delivering reasonable returns.
“Because liquid funds invest in high-credit-quality instruments with very short maturities, the risk of default or capital loss is significantly reduced,” Kaushik explained. “These funds prioritise safety and liquidity over chasing high returns.”
However, Kaushik clarified that investors shouldn’t expect liquid funds to generate extraordinary profits. “The main objective of a liquid fund is preserving capital, not delivering huge gains,” he said.
Kaushik advises savers to move beyond simply parking money in a low-yield savings account. “At the end of the day, it’s about making your money work harder,” he concluded. “A few smart moves can help you beat inflation and ensure your wealth grows instead of quietly diminishing.”