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Should You Park Your Money In High-Interest 7% Return Savings Accounts?

Senior citizens typically keep a part of their money in savings account for emergency needs and regular cash flow. With many banks offering a high rate of interest on savings account, does it make sense to park your money in a savings bank?

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Meghna Maiti
June 24, 2023
Should You Park Your Money In High-Interest 7% Return Savings Accounts?

When investing, people typically look for returns, and returns are always inversely proportional to risks. Equity has the potential to provide higher returns, and comes with higher risks. On the other, a fixed deposit (FD) is considered very safe, and thus the returns are also low as compared to equity.

This is also the reason why senior citizens usually prefer to park their money in fixed deposits over other high-yielding but riskier investment options.

But seniors also keep a part of their money in savings account for meeting regular cash flow requirements as well as certain emergency needs that might unexpectedly arise.

7% Interest On Savings Bank

With the consecutive hike in repo rate, which led to a simultaneous hike in deposit and lending rates, the larger banks are now offering a return of 6.25-6.50 per cent on fixed deposits. Seniors earn about 0.5 per cent extra on such deposits.

But now, some banks are offering a high interest rate of up to 7 per cent on their savings bank deposit, even though larger banks like the State Bank of India is offering an interest rate of 2.7 per cent on their savings account.

For instance, Kotak Mahindra Bank has recently launched an ActivMoney feature, where money above a threshold is automatically transferred to a FD-like account which provides a rate of interest of 7 per cent. The additional benefit this feature offers is that there are no premature withdrawal charges that are applied to the FD, thus allowing the customer to withdraw the entire money at any time.

Thus, the question that arises is that if you can earn 7 per cent interest per annum on your savings account, should you go for it?

Says Renu Maheswari, a Sebi-registered investment advisor and chief executive officer and principal advisor, Finzscholarz Wealth Manager: “Few banks provide high interest on savings accounts to attract new customers. It is also a good way for consumers to avail the facility of high liquidity with good returns.”

 Safety Factor

If the bank is registered with the Reserve Bank of India, then your capital is protected, even if it is not a scheduled commercial bank. Small finance banks (SFBs) also come under the purview of the RBI just like any other scheduled commercial bank. They have to also follow the guidelines set by RBI.

With regards to risk of losing money, the same Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance cover of up to Rs 5 lakh that applies to all scheduled commercial banks, applies to SFBs too.

“Therefore, your deposits, including savings account, FDs, recurring deposits and current account in SFBs are equally insured under DICGC, for up to Rs 5 lakh per bank per depositor in the event of any bank failure and/or default,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.

It is therefore advisable not to keep more than Rs 5 lakh in any of these accounts.

However, Maheswari warns that one should not use the savings account as an investment option. “Use it as an alternative to liquid funds. Also do not get lured into the other products offered by these banks,” she says.

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