Bank savings and deposit accounts on decline

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Bank savings and deposit accounts on decline
The Reserve Bank of India (RBI) has raised key policy rates 11 times since March 2010 to curb inflation. In turn, major public sector banks have also revised their base rates and benchmark prime lending rates (BPLR), while the current and savings accounts rate still remain the same at 4%.

Banks are continuously losing their streak on part of their Current and Savings Accounts (CASA) due to the rise of competitive products in the market.

According to the data released by RBI previous week, bank deposits have fallen sharply from 53% in 2008-09 to 42% of all household savings.

Banks have complete freedom in fixing their term deposit rates, but interest rates on savings deposits are still regulated by RBI in India. The spread between savings deposit and term deposit rates has widened significantly in recent times, which has given rise to many other short-term saving instruments.

With the spread widening, bankers have been witnessing a decline in saving deposits, while term deposits have shown a strong growth.

When rising rate scenario pops up, it comes with various investment options to reap good returns. Then, why would one consider to keep his extra cash in bank's savings account when there are ample alternative options available in the market which provide better returns.

Options like bank term deposits, fixed maturity plans offered by various mutual fund houses, gold etfs, index funds, etc provides better returns as compared to bank savings and deposit accounts.

People are becoming more and more financial savvy with the growing financial literacy in today's era.

At present, public sector bank term deposit rates are prevailing around 9 – 9.60% and that of private sector bank term deposit rates are around 8 – 10.50% which seems pretty high as compared to 4% in banks current and savings accounts rate.

Mobilizing current and savings account deposits will be a tough challenge for the bank in near term, as interest rates are likely to stay at higher levels for some more time.

Read more about: rbi, bank, fmp, fixed deposit
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