Highest Interest Rates on Savings Bank Account

This was posted by Ritik Singh on FinTalks Facebook Group on 1st May 2021.

We all want to park our idle money with some bank that can give us a better interest rate. In case you wondered which bank offers the best savings account interest rate in the market, then this post will help you.

Banks Offering Highest Interest Rates:

This list is updated as of 6th May 2021.

FOR BALANCES UP TO RS 1 LAKH INR:

  • Fincare Small Finance Bank: 5%
  • RBL Bank: 4.5%
  • ESAF Small Finance Bank: 4%
  • IDFC First Bank: 4%
  • Suryoday Small Finance Bank: 4%
  • Ujjivan Small Finance Bank: 4%
  • AU Small Finance Bank: 3.5%
  • Equitas Small Finance Bank: 3.5%
  • Jana Small Finance Bank: 3.5%
  • Bandhan Bank: 3%

FOR BALANCES ABOVE RS 1 LAKH INR:

  • Equitas Small Finance Bank: 7% (Above ₹1L and up to ₹2Cr)
  • Ujjivan Small Finance Bank: 7% (Above ₹1L and up to ₹25L)
  • Fincare Small Finance Bank: 6.25% (Above ₹1L and up to ₹5L)
  • Suryoday Small Finance Bank: 6.25% (Above ₹1L and up to ₹10L)
  • Bandhan Bank: 6% (Above ₹1L to ₹10Cr)
  • Jana Small Finance Bank: 6% (Above ₹1L and up to ₹10L)
  • RBL Bank: 6% (Above ₹1L and up to ₹10L)
  • ESAF Small Finance Bank: 5.5% (Above ₹1L and up to ₹10L)
  • AU Small Finance Bank: 5% ( ₹1L to less than ₹5L)
  • IDFC First Bank: 4.5% (₹1L and below ₹10L)

THINGS TO KEEP IN MIND:

  1. Don’t keep opening new accounts just for the sake of a higher interest rate- they’re temporary. So, do consider other factors like MAB, bank’s charges, overall service.

  2. Most banks have a tier system for interest rates. For example, in the case of IDFC, if you keep 2.5L, your 1L will earn 4% interest while the other 1.5L will earn a 4.5% interest rate.

  3. Don’t keep all your savings in one single account.

  4. Try keeping an amount lesser than 5L in smaller banks since that’s the maximum amount insured by DICGC. You don’t get the money instantly in case a bank defaults- it may take years, so have enough liquidity at other places.

An Alternative Option to Banks:

If you have extra savings but don’t want to invest them in the stock market or equity mutual funds, you can opt for debt funds (funds that invest in fixed income instruments).

They’re safer (still have some risk), less volatile, and can help maximize your savings over a period.

Ultra Short Term Debt Fund (Ideal duration 3-6 months)

Check returns, compare funds here: Best Ultra Short Term Funds | Funds Performance & Rank by ET Money

Money Market Funds (up to 1 Year)

Check returns, compare funds here: Money Market Funds: Definition, Benefits, List of Best Funds

Short Term Debt Funds (1-3 Years)

Check returns, compare funds here: Best Short Term Mutual Funds | Top Short Term Funds in India

THINGS TO KEEP IN MIND:

  1. Not considering liquid funds as they don’t offer worthy returns.

  2. Do not blindly run for interest rate while opting for debt funds (remember Franklin Templeton fiasco).

  3. Always invest in debt funds with a high rating, low-risk instruments (A+, AAA-rated instruments are safest, followed by AA)

  4. Prioritize funds with higher AUM (higher AUM handles redemption pressure better)

  5. Thumb Rule for Debt Investments: Liquidity: Risk: Return.

  6. The tax on Debt Fund held for less than 3 years is calculated as per the income tax bracket for that individual.

  7. Any interest earned on debt funds that are held for more than 3 years is counted under Long-Term Capital Gain. The applicable tax rate, in this case, is 20% with indexation plus 3% cess which comes down to 20.90%.

If you have any funds to recommend or have been investing in debt funds, it’ll be great if you share it below. Do your own research and verify all the facts before opening an account or making any investments.

More Insights:

Here’s a FinTalks Group post by Anit Shah on 2nd May 2021, where he discussed possible options to park your idle money away from IDFC First Bank, which reduced interest rates recently (1st May 2021).

  1. Transfer to other banks paying 7% or more like RBL Bank.

  2. Transfer to safer banks with lower interest rates such as HDFC, ICICI, SBI, Axis Bank, etc. if u don’t want the hassle of shifting funds every few months.

  3. Transfer to Debt Funds {Risk involved} for 6.5-10%, more risk more gain.

  4. Transfer to Paytm Fixed Deposit (FD): It offers the following 2 options: Indusind Bank (safer, 6.5%) OR Suryoday Small Finance Bank (comparatively riskier, 6.75%)

The benefit of creating Paytm FD is that it won’t charge anything if u do a premature withdrawal. If you do premature withdrawal directly with Indusind bank branch/online it takes 1% interest as a penalty. However FD with Paytm is still risky, park your funds only if u don’t do much in ur acc, just keep it for FD and interest.

  1. Transfer to banks like IndusInd FD (6.5%) and get an FD-based cc from them. This is one of the best options to consider. You will get a 90% limit back.

Well, park your fund here only if u won’t need them till maturity or cc expiry, else they will charge 1% interest as a penalty.

Thank you for reading. Don’t forget to join our FinTalks Facebook Group & FinTalks Telegram Channel for regular updates on banking and finance.