Bank FDs are meant for capital preservation and suits especially those who are retired and need a regular income with high safety.
The interest rates on bank savings accounts as well as bank fixed deposits have been on the downward trend. However, there are a few banks which are still offering a high interest rate on their savings accounts. In them, the rate of interest is higher than the rate being offered by some banks on their fixed deposits. Getting more interest on savings accounts could suit many individuals rather than locking in funds into bank FDs. Also, as money in a savings account provides better liquidity, individuals can make the best of the current interest rate scenario.
“While a majority of public and private sector banks are currently offering interest rates in the range of 2.5-4 per cent per annum on their savings accounts, there are a few private sector and small finance banks that are offering up to 7.15 per cent per annum,” informs Adhil Shetty, CEO BankBazaar.com
Still, bank FDs are meant for capital preservation and suits especially those who are retired and need a regular income with high safety. “Amid heightened uncertainties fueled by the Covid-19 pandemic, capital protection has become as critical as capital appreciation. As such, it won’t be wrong to argue that risk-averse investors should continue investing in fixed deposits despite the lowering of interest rates in the recent past,” says Shetty.
Table showing 10 banks currently offering the highest rates on their savings accounts and their respective FD rates for 1-3 years’ tenures:
All data compiled by BankBazaar.com
Disclaimer: Banks sorted in descending order according to highest advertised interest rates on savings accounts as on Aug 26, 2020. Minimum balance requirement for regular savings accounts. MAB*: Monthly Average Balance, AMB**: Average Monthly Balance, AQB***: Average Quarterly Balance, MB****: Minimum Balance. FD Data as on respective banks’ website on Aug 25, 2020. For each year range, the maximum offered interest rate is considered; interest rate is for a normal fixed deposit amount below Rs. 1 crore.
If one is looking to open a savings account in any of these banks, the process has become simpler. Opening a savings account is possible even without visiting a bank branch. “Some banks are now offering account openings with video KYC. Digital and contactless account openings are preferable today due to the prevalent health risks. You may provide any of the multiple officially valid documents such as PAN, Aadhaar or your driver’s license for your account opening,” informs Shetty.
But, before you consider a savings account with any bank, make sure to consider a few important things. Shetty says, “A high-interest savings account could be a great way to secure and grow your basic funds maintaining high liquidity and without taking undue investment risks. However, investors would be well-advised to thoroughly check the fine print before applying for a new savings bank account getting complete clarity about things like minimum income requirements and minimum balance requirements. They should also consider the additional facilities on offer (like free ATM-cum-debit card), mobile banking facilities, service record, branch network, and track record of the banks before finalizing their decision.”
It could be difficult to find out the direction of the interest rate over the short to long term. Hence, it is always better to spread one’s deposits across different tenure. This is met through the ‘laddering’ approach which helps one to maintain liquidity as well as interest rate risk. Shetty suggests, “Investors can consider deploying what is called the “FD laddering technique” for higher liquidity, greater investment safety and better returns-earning potential in the future. Under this technique, investors can open multiple FD accounts with different maturities and keep re-investing them if feasible to create an investment loop.”
“While doing so, they can also consider investing in banks offering higher FD interest rates and even corporate FDs after due diligence and risk assessment. They may also want to limit their deposits to Rs. 5 lakh per bank for added security as that much is insured by the DICGC,” adds Shetty.