Reserve Bank of India has amended the rule for saving bank account a week ago. Now banks can choose different saving account rate of interest to different type of accounts, not person to person but same type of accounts same rate of interest.
Earlier there was a fixed rate of interest for the saving account holder at 4% per annum. It was very less interest rate so the people often choose short term fixed deposit which fetch higher rate of interest compare to saving accounts.
But now the picture has changed. Many banks like IDBI bank, Indusind Bank and Yes bank have increased the rate of interest for saving account holder to 150-200 basis points which means that they are offering rate of interest for saving account around 5.5-6%.
The short term fixed deposits which are for 15-90 days are offering rate of interest around 4.5-5% differs to bank to bank. So the people will prefer to saving account compare to short time fixed deposit which is giving less rate of interest. Earlier people only prefer short time fds because of higher rate of interest. Saving account has the more liquidity as cheque book and debit card is issued by the bank, so there is no problem of money in requirement.
Banks also prefer saving account deposit compare to short time fixed deposit as in saving account, banks need to give interest on day basis and there is less paperwork in saving account deposit or withdrawal to short time fixed deposit.
The short time fixed deposit will tend to reduce dramatically when the big players like SBI, HDFC, ICICI or AXIS bank will come in to increase the saving account rate of interest.
So it’s worth now to deposit the money in saving account compare to invest in short time fixed deposit.