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Floating savings rate means higher returns for you

business Updated: May 03, 2011 21:19 IST
HT Correspondent

As the Reserve Bank of India brings its focus on savings bank deposit accounts, HT tells you how this is set to impact your finances.

What is savings deposit?
It is a hybrid product that combines the features of both current accounts (meant for transaction purposes) and term deposit accounts. One can withdraw money from a savings account at any time, and a fixed interest rate is paid on the average balance maintained in the account.

What rate does the bank offer?
Till Monday, banks offered 3.5%. But on Tuesday the Reserve Bank of India increased the rate by 50 basis points (100 basis points = 1 percentage point) to 4%. This decision was taken keeping in view the growing disparity between the savings deposit rate and term deposit rates.

How has yield on savings accounts changed over time?
The interest rate on savings deposits was fixed at a high of 6% per annum in April 1992. Since then RBI brought this rate down on several occasions, to 3.5% reached in March 2003. It has stayed at that level since.

What is the way forward?
The central bank came out with its discussion paper on deregulation of savings deposit rate last Thursday. This proposes that banks will offer a market-determined rate, which will eventually lead to the banks competing among themselves and offering higher rate of interests to attract customers.

What is the state of savings deposits in India?
As of March 2009, Rs 896,301 crore was the total amount of money with banks in saving bank deposits. Of this, 83.6% was the contribution of the household sector.