Digital account opening is the way forward for banking, and it is allowing Indians in deep geographies to instantly open accounts by authenticating themselves with Aadhaar and PAN.
Most leading banks such as SBI, ICICI Bank and HDFC Bank are offering a low rate of interest on their saving account compared to the rates offered by Small Finance Banks. Irrespective of the amount SBI offers 2.7 per cent per annum to their savings bank account holders. And, both ICICI Bank and HDFC bank offer 3 per cent per annum on deposits up to Rs 50 lakh on the deposits in a savings account.
The interest rate on saving account is higher in Small Finance Banks compared to interest rates offered by most of the leading banks on their fixed deposit across tenures. However, the higher rate of interest may be applicable only on savings account deposits above a certain amount. “You can get rates up to 5% on balances under Rs. 1 lakh with some small finance banks, and up to 7.25% on eligible balances above Rs. 1 lakh,” says Adhil Shetty, CEO, BankBazaar.com
The savings account interest rate of Small Finance Banks on certain deposits is even higher than FD interest rate of the leading banks. The rate of interest on SBI fixed deposits range between 5 per cent and 5.4 per cent per annum for tenure between 1 year and 10 years. ICICI Bank and HDFC Bank are also offering FDs with an interest rate of around 5-5.5 per cent.
So, if you are looking to park money in a saving account and yet earn a higher yield, Small Finance Banks can be an alternative to explore. Till the FD rates move up, parking funds in the saving account of these banks earn you a higher return than FD.
Opening a savings account with any bank has become much easier and simpler than before. One may open a savings account even without visiting a bank branch. All the KYC formalities can be done online and the savings account can be opened instantly. “Digital account openings is the way forward for banking, and it is allowing Indians in deep geographies to instantly open accounts by digitally authenticating themselves with Aadhaar and PAN. However, such accounts have safeguards and restrictions, and therefore a full KYC will need to be completed to lift the restrictions on deposits and withdrawals,” says Shetty.
But, many depositors often ask about the safety of money in the small finance banks and whether the DICGC limit also applies to them. “Depositor money at all commercial banks is insured by DICGC to the limit of Rs. 5 lakh per customer per bank. The Indian banking ecosystem has several checks and balances to protect depositors and their funds. The RBI will safeguard depositors. However, access to funds may become a challenge if any bank undergoes a moratorium during which access to funds is restricted. Therefore, savings should also be diversified. You can park your funds in multiple banks including small finance banks as per your returns expectations,” says Shetty.