Why Banks Are Cutting Down On Savings Rates And Options For You At This Time

Now that BOB has followed the suit of SBI and cut down on interest rate on savings bank account to 3.5% per annum. You can explore available options and recourse for you as any earning loss in the long run turns out to be substantial.

Reason For Rate Cut

After the RBI decentralized interest rate on savings bank, most of the older and public-run banks offered 4%p.a interest rate. But now as the RBI is of the view that inflation which is an important economic measure has come down significantly and provides for good or high real rate of return, the decision of lowering interest rate on savings account has been taken. Real rate of interest is the return that an investor gets after adjusting for inflation. So, sharp decline in the inflation value to levels of 1.54% in June has boosted the real return for investor.

Further Managing Director SBI said "Real interest being so high, there was no choice for the bank but to bring down the savings account interest rate. The choice was either to raise MCLR (marginal cost of funds-based lending rate) or reduce the savings bank rate. We didn't consider it appropriate to raise MCLR".

Options For You

Liquid Funds or Sweep in Fixed Deposit : Those who fall in the higher tax bracket cannot consider the sweep-in fixed deposit facility. Else others can for sure park their funds in sweep-in fixed deposits. Liquid funds provide a higher interest rate of 6-7% which is a tad higher by 2-3%.

Other Financial Products- "For the first time, the realization of a low interest rate is likely to hit the consumers. SBI's move will also start the entire process of shifting investment from guaranteed products to other financial assets. This is going to be a significant turning point for incremental money to move towards financial instruments. However, I am not concluding that all money will come to mutual funds but we will benefit," said Mohanty, CEO of Mirae Assets Global Investments India (Pvt.) Ltd.

Bank Account Portability to be available- Also, to the relief of SBI and BOB account holders, migration of bank account or bank account portability may soon be available and in the process RBI has asked banks not to change the bank account number of the account holder.

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