Have Large Balances in Your Savings Account? Here's How You Can Earn Better Returns

Investment

oi-Sunil

By Sunil Fernandes

Published: Tuesday, December 23, 2014, 8:44 [IST]

There is a possibility that you may have large balances in your savings account in order to meet emergency requirements. While there is no restriction on the amount that you can keep many experts suggest to keep as much as six months expenses to meet an emergency.

However, if you do follow that norm you would earn an interest rate of just 4 per cent in your savings account. This means if you have a balance of Rs 1 lakh, your would earn just Rs 4000 annually, while there is a scope to earn much higher elsewhere.

Here are a few options that you could consider to maximize returns from keeping high balances in your savings account.
Open a account with a bank that offers high interest rate on SB Accounts

There are banks like Yes Bank, Kotak Mahindra, Ratnakar Bank and IndusInd Bank that offer higher interest rates on balances in savings bank account, than other banks. For example, Yes Bank offers an interest rate of 7 per cent on balances in the savings account, which is almost double than what most other banks offer. If you have large balances in SB account, move it to these banks.

Why Flexi Deposits Are a Good Bet?

You may tend to keep money in your savings bank account for emergency, but that emergency might never happen. This means that you tend to get lesser interest on your balances. The best option would be to open a flexi deposit account. A flexi deposit works like a fixed deposit and a savings account. The money over and above a certain amount in your savings account is automatically swept away into a fixed deposit account, which gives you superior interest rates.

In case of an emergency, the deposit is automatically broken and amounts withdrawn, while the balance continues to attract fixed deposit rate of returns. Say you have a balance of Rs 10,000 in your savings account and Rs 1,00,000 in the FD that has been swept. If you issue a cheque of Rs 20,000, your cheque will not bounce because of the inadequate balance in your SB account. The amount that is short in the SB account will simply be swept away from the deposit account, while the remaining balance will continue to attract FD interest rates.

Conclusion

Thus, if you have large amounts by way of balances in your SB Account, do look at the above two options. A short term FD may not be a good idea, as you have to keep renewing them. Also, in case of a serious emergency, you will have to break the deposit and may have to visit the bank, if you are not into internet banking.

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