The humble savings account deposit has emerged as a favourite parking space for investors — rising by Rs 240,612 crore, or 21%, to Rs 1,377,000 crore in 2010-11 — more than double that of five years ago.
This highest-ever increase resulted from, among other things, the flight to safety from the volatile stock markets and high real estate prices.
The move also became attractive since April 1, 2010, when banks switched to calculating interests on a daily basis from offering interests only on the lowest available balance between the 11th and the last date of a month.
What's more, the Reserve Bank increased the interest rate on savings deposits to 4% from 3.5% in May. Thus, "the effective yield on savings deposits increased from 2.5% to 4.5%," said KVS Manian, head of retail liabilities and branch banking, Kotak Mahindra Bank.
Some experts, however, say it is not prudent as savings accounts offer comparatively low returns.