Banks Can Fix Interest Rates On Savings Deposits : RBI

Good news for savings account holders! The RBI has announced deregulation of interest on savings account interest rates. Now banks are allowed to determine their own interest rates on savings accounts for the deposits more than Rs.1lakh.

Earlier, banks were supposed to give 4% interest on savings bank deposits. The deregulation dated 25th October 2011, has resulted in the benefit of high interest rates for savings account holders. Because of this directive from RBI, savings accounts interest rates are likely to go up due to the competition among the banks to acquire these low-cost deposits.

The deregulation of savings accounts will be a new bullet against the banking industry as there will be a hard time for the banks to decide their competitive interest rates for retaining customers and ensure loyalty by offering a variety of service features at no or low cost. Yet, a small hike in interest rate will reap in more returns for High Net worth Individuals (HNI) and for the corporate sector from higher deposits.

However, it is advisable for the savings account holders to shift their surplus cash into more liquid and short-term deposits that result in higher yields/returns.

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