HDFC Bank cuts savings rates, BoI lowers FD rates: How does this affect account holders?

Optimise your liquid assets to earn higher returns in a falling interest rate scenario

In the wake of the Reserve Bank of India cutting its policy rate at its latest monetary policy meeting, HDFC Bank has decided to reduce its savings account interest rate from 3 percent to 2.75 percent with effect from April 12 for deposits of up to Rs 50 lakh.

Deposits beyond this limit will earn 3.25 percent per annum. The bank had last slashed interest rates for this slab during COVID-19 outbreak, in June 2020.

In comparison, India's largest bank, State Bank of India (SBI) offers an interest rate of 2.7 percent on savings deposits of less than Rs 10 crore. For deposits above this limit, the interest rate is 3 percent. The government-backed banking giant has also reduced its fixed deposit rates across tenures.

How HDFC Bank interest rates have moved

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) cut the repo rate by 25 basis points (bps), from 6.25 percent to 6 percent. In his policy statement on April 9, RBI governor Sanjay Malhotra had pointed out that the banking system's liquidity deficit had turned into surplus on March 29 due to a slew of measures that injected about Rs 6.9 lakh crore into the system. “Coupled with government spending picking up pace during the latter half of March, system liquidity further improved and it stood at a surplus of Rs 1.5 lakh crore as on 7th April, 2025,” he said.

Following the repo rate cut, Bank of India (BoI) has withdrawn its special-rate 400-day fixed deposit that offered 7.3 percent, besides reducing rates across tenures. It has also passed on the entire 25-bps repo rate cut benefit to its existing as well as new home loan borrowers.

Optimise your idle funds

Irrespective of the interest rates offered on savings accounts, financial advisors advocate parking just the bare minimum in these accounts. “Estimate your monthly budget, day-to-day expenses and maintain a balance equivalent to this amount in your savings account. For emergencies, you can park funds in fixed deposits with sweep-in facilities linked to your savings account,” says Pankaj Mathpal, founder, Optima Money Managers. Sweep-in deposits allow you to withdraw the amount that you need in an emergency, with the balance continuing to earn the FD interest rate.

To manage emergencies, salaried employees should hold at least six months worth of expenses in a fixed deposit. For those with uneven streams of income such as businesspersons or professionals, Mathpal recommends a contingency fund that can meet nine months’ expenses. “If you are a salaried employee and you have a large payment—say an EMI—coming up on 21st of the month, even in such cases, you can park your surplus funds in a liquid fund, which can be redeemed around 15th of the month, and enjoy returns in the initial part of the month,” he suggests.

Also read: How much cash should you keep in your savings bank account?

Liquid funds, more remunerative alternatives

Instead of letting your surplus money lie in your savings account a meagre return by way of interest, you can put it to better use. “As per the rule of thumb, out of the funds that you set aside for an emergency, one-third should be parked in a savings account, another third in a fixed deposit and the balance in a liquid fund,” says Preeti Zende, founder, ApnaDhan Financial Services.

However, you do not need to completely adhere to this rule. You can park your funds in a sweep-in FD and keep minimum funds in your savings account. “Despite taxation structure for liquid funds and FDs being the same, the former are more tax-effective as the tax is deferred. It will come into the picture only at the time of redemption, while FD interest accrued attracts tax every year,” says Zende.