Savings account balances up to ?1 crore will now earn 6%. The rates for accounts with higher balance will progressively lower. Read the story to know more.
IDFC First Bank has cut savings account interest rates to 6%. This cut will be applicable to balances below ?1 lakh and those above ?1 lakh.
This move comes after a month of raising the savings account interest rate to 7% for balances up to ?1 lakh. The Savings account balances up to ?1 crore will now earn 6% and the interest rates will lower down progressively for the accounts with higher balance than 1 crore. For balances above ?10 crore, it will drop to 3.5%.
The Problem Of Excess Liquidity:-
V Vaidyanathan, MD and CEO, IDFC First Bank said on January 30 in an earnings related press release that the bank has excess liquidity of Rs. 17,000 crore as of date, which is beyond the quarterly loan growth requirements. As these deposits are increasing, for the deposits up to Rs. 1 crore, the bank is reducing the interest rates on savings accounts from 7% to 6%. He said that in order to save on negative drag on margins because of excess liquidity, the bank by this move hopes to drain out certain excess liquidity during this quarter.
Savings account holders, unlike the fixed deposits account holders, do not lock in a particular rate. This savings account rate, can be changed by the concerned bank at any time.
However, the interest rate of 6% offered by IDFC First, is significantly higher than that offered by the rival banks which lingers around 3%. On the balances up to Rs 1 lakh, 3% account interest rate is offered by larger private sector rivals such as HDFC Bank, ICICI Bank and Axis Bank.
For balances above ?50 lakh, the rate rises to 3.5% in these banks. In cases of very large balances, slightly higher rates are offered sometimes. SBI, which is one of the large public sector lenders, has rates below 3%. For savings account balances below ?1 lakh as well as above ?1 lakh, it offers 2.7%.
Interest Rates Of Other Banks:-
However, a bunch of few new scheduled commercial banks offer interest rates which are comparable to that offered by IDFC First. Let’s have a look at them:-
- IndusInd Bank offers 6% on balances above ?10 lakh, 5% on balances of ?1 lakh to ?10 lakh and 4% on balances up to ?1 lakh.
- RBL bank offers 6.75% on balances between ?10 lakh and ?3 crore, 6% on balances from ?1 lakh to ?10 lakh and 4.75% on balances up to ?1 lakh.
If the bank in question fails, account balances up to ?5 lakh are protected under the government’s deposit insurance guarantee scheme. Support from government owned entities such as the SBI bailout of Yes Bank has been extended in cases of failures in the scheduled commercial banks.