Reserve Bank of India (RBI) had deregulated the interest rate offered on Savings Account by banks in October 2011. It was expected then that a lot of banks would compete for this and offer competitive rates. But unfortunately there are just a handful banks which have offered higher interest rates while all others are still struck up at 4%.
The highest Saving Account interest rate is being offered by The Ratnakar Bank which at 7.1% for balance above Rs 10 lakh and 6.1% for balance above 1 lakh and 5.1% below that.
Yes Bank has the second best offering at 7% for balance above 3 lakh and 7% for all others.
Four small banks Kotak Mahindra Bank, Indusind Bank, Bandhan Bank and Lakshmi Vilas Bank are offering interest rates of 4.25% to 6% depending on your balance of savings account. All other banks are still offering 4% irrespective of the balance.
The table below shows the interest rate offered by banks on its saving account.
Additional Interest: If you keep 1 Lakh in your savings account, at 4% you would get Rs 333.33 as interest per month while with 7% you would get Rs 583.33. So you would earn additional Rs. 250 per lakh per month.
Tax Efficient: Also in Budget 2012 Finance Minister had exempted interest income up to Rs 10,000 from Savings Account every financial year under section 80TTA. So there would be situations where people in higher tax bracket would be better off by putting money in Savings Account than doing Fixed Deposit.
Also Read: 22 Hidden Charges in Saving Bank Account
Should You Get New bank Account?
The next question is should you go to these banks to get benefit of enhanced interest rates on savings account?
The answer depends on a few factors namely:
1. How much money do you keep in your savings bank account?
If you are someone who has a large balance in savings account you might want to opt for accounts offering higher interest rates. For everyone with not very significant balance an additional account does not make sense.
2. Do you want to pay charges associated with the new savings account?
Even if you have higher balance in your account, do you want to get an additional account and keep a track of all the new charges banks impose on accounts. Also you’ll need to maintain minimum balance.
3. Your Tax Bracket?
If you are in 30% tax bracket then it makes sense to have some money in savings account yielding higher interest rates than rush for short term Fixed Deposit.
Most banks offer sweep in facility where the amount in excess of pre specified automatically goes into fixed deposit. So you might take advantage of the same rather than going for a new account. But remember the interest earned in sweep in account is fully taxable as your interest income from fixed deposit.
News on Saving Account Interest Rates:
Lakshmi Vilas Bank to offer 4% interest to its Saving Account customers maintaining up to Rs 1 lakh balance, 5% for balance between Rs 1 to 5 lakhs and 6% for balance above Rs 5 Lakhs. This is effective from April 1, 2016.
IndusInd Bank cuts interest rate to 4% on Savings account with daily balance below Rs 1 Lakhs; 5% for balance between 1 to 10 lakhs and 6% for daily balance above Rs 10 Lakhs from May 1, 2015
Yes Bank has changed the minimum balance slab for offering 7% interest rate on savings account. From April 1, 2015 7% interest would only be offered for balance above Rs 3 lakhs while below Rs 3 lakh will continue to get 6%.
Lakshmi Vilas Bank to offer 5% interest to its Saving Account customers maintaining Rs 1 lakh balance calculated on daily basis. This is effective from September 8, 2014
IndusInd Bank cuts interest rate to 4.5% on Savings account with daily balance below Rs 1 Lakhs while still offering 6% for daily balance above Rs 1 Lakhs from September 1, 2014