As banks across the public and private space have been cutting down on their interest rate cost on deposits because of high liquidity situation, the recent case being with the SBI and ICICI Bank, one may look up to a better avenue that can offer liquidity at the same time can be return wise lucrative or a better deal.
This is after the RBI has been cutting key policy repo rate to the lowest ever of 4% now.
At the current economic crisis, that most of us are going by and are unable to meet our ends, this is a further dent on our financials.
So, what can you do then?
1. Keep minimum amount as you deem appropriate for liquidity needs in bank savings account:
One can if not to an appropriate extent can still estimate the amount he may or should keep in bank savings account for emergency situation. And deploy the rest in investible options.
2. Liquid funds:
These mutual funds though come with some extent of risk can be a go to choice as they far or less provide return at par with benchmark bond yield say 4-6%. Also, these are highly liquid instruments. With market risk, the advantage that comes with these funds is that they do not attract TDS implications on capital gains. However, opting for dividend plans of such funds will incur TDS at 10% on dividends above Rs/ 5,000 per year.
3. Sweep in fixed deposits: This is linked to a savings bank account and with sweep in fixed deposits you will get better return of 5.25% as compared to a savings account interest of 3.5-4% in the case of Kotak Mahindra Bank. The account comes with the flexibility and allows to spend on one's needs as and when required.
So, say in a case when the savings account is Rs. 5000 and you also maintain a sweep-in FD with balance of Rs. 10000 and then need to spend Rs. 20000. Then because of the sweep in feature, this money which is required for the expenditure will be transferred to the savings account.
Also, there is a sweep out feature, wherein when the savings account reaches a threshold, the amount can also be transferred a FD account.
Here in what needs to be mindful is that you ought to keep the balance which you will not need for regular expense in bank savings account.
Also, you need to be cautious that for the withdrawal thing in such instruments, LIFO or last in last out is more beneficial as it allows older FDs to continue until maturity. In such FDs there can be a case that you may not earn special privilege like earn a higher return on FD.