Selected public sector banks have reduced interest rates on savings accounts. For instance, Punjab National Bank reduced interest rates from 3.5 percent to 3 percent. Savings bank accounts generally carry lower interest rates compared to those on fixed deposits.
New private banks and small finance banks are offering higher interest rates on savings accounts compared to public sector banks. You can also use the savings account for parking your emergency funds in these pandemic times. It’s important to give some serious thought on how much interest is paid by banks for leaving your funds in the savings account.
Interest rates are comparable to those of leading private banks
As per data compiled by BankBazaar, IDBI Bank offers up to 3.4 percent on savings account followed by Bank of Baroda and Canara Bank, which offer interest rates of up to 3.2 percent on the savings account. These interest rates are competitive when compared with what leading private banks offer. For instance, HDFC Bank and ICICI Bank offer 3 percent to 3.5 percent interest and Kotak Mahindra Bank offers 3.5 percent to 4 percent.
However, large public sector banks give far lower interest rates to their savings account holders. For instance, State Bank of India (SBI) pays just 2.70 percent followed by UCO Bank paying 2.50 percent interest on the savings account. Both of them couldn’t make it to the top ten FDs.
The interest rates offered by small finance banks to their savings account holders are higher compared to public sector banks. For instance, AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank offer interest rates of up to 7 percent.
Also read: Yes Bank and DCB Bank offer 7% interest on 3-year FDs for senior citizens
Minimum balance requirements are lower
The minimum balance requirement in savings accounts of public sector banks starts from Rs 250 and at the State Bank of India, it’s nil. This is kept much lower compared to the requirements of leading private banks in India because public sector banks are backed by the Government of India and they are more interested in reaching out to the lower and middle-class customers with their services. For HDFC Bank, the minimum balance requirement is Rs 2,500 to Rs 10,000. In the case of ICICI Bank, the minimum balance requirement is Rs 1,000 to Rs 10,000.
Choose a bank with a long-term track record, good service standards, wide branch network and ATM services across cities; a higher interest on savings accounts would be a bonus.
Also read: How to choose the most suitable fixed deposit by balancing risk and returns
A note about the table
The interest rate on savings accounts for all BSE listed public sector banks and private banks are considered for data compilation. Banks whose websites don't advertise the data are not considered. Minimum balance requirement for regular savings account and excluding basic savings bank deposit (BSBD) account are considered.