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How to manage the bank savings account?
Posted on: 28/Aug/2017 3:56:12 PM
It is essential to be aware of proper and efficient management of the bank savings accounts in view of the prevalent conditions where the interest rates are being reduced.
In the present scenario, the interest rates are down not only for savings accounts but also for other types of high-yielding Provident Fund and Small saving plans. Thus, even generally, only very little interest is earned by the money kept in the savings accounts in banks. It is normally 4%. Some banks offer additional interest. Some new banks, such as payment bank, offer higher interest.
In this scenario, there has been recently an increasing trend among the banks to reduce the interest rates. The country’s largest bank, the State Bank of India, started this. Subsequently, most other banks have announced reductions in interest rates for savings accounts. So far, around 11 Banks have announced a reduction in the interest rates. It is expected that this trend will continue.
There are many reasons to reduce the interest rates for small savings. The main reason is the inflation. In the prevailing conditions, inflation has been reducing. So, the bankers consider that the interest rates are higher.
In the month of June, the inflation on retail has reduced by 1.54% and the benefit of the inflation-based 1-year government bonds was 4.82%,
When considering the usual interest rate as well as the inflation, the true interest rate is calculated. The true interest rate is calculated by deducting the inflation rate from the prevailing interest rate. This is why the banks have started reducing their interest rates for savings accounts. This calculation applies as well to the provident funds, fixed deposit, and other long-range deposits. Once the inflation rate is taken into account, the interest benefit will be even lesser.
The banks offer interest every quarter year based on the daily balance in the savings account. The experts in the field believe that the investors should pay extra attention to the prevailing trend of lowering interest rates. The experts generally advise that it is not wise to keep the savings of the funds in the banks when they are not urgently needed. However, the experts feel more certain that this is not wise especially after the falling interest rates for bank savings accounts.
As the benefit of the savings accounts is less, especially considering the impact of inflation and taxation, there is no benefit in the long-range by this.so, the experts feel that it is far better to keep the unused money by investing in a better manner. With the prevailing trend, this advice has gained more importance.
Keeping the minimum necessary amount in the savings accounts, the remaining additional amount can be invested in proper financial saving avenues such as mutual funds. The simplest one is to transfer the additional amount in a fixed deposit. However, the interest even for FD is less.
The experts advise that the avenue of investing in mutual funds known as ‘liquid funds’ can be explored. Liquid funds offer the facility to immediate withdrawal of funds if necessary. They offer 6% interest.
In general, the experts never recommend keeping large amounts in the savings accounts, especially by the small-scale investors. However, this happens to be the most prevailing trend among the Indians. The present situation provides an ideal opportunity to explore other investments such as the mutual funds.
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