4%...
Yes, 4% per annum... That's the interest rate offered by most bank accounts in India. And some go even lower.
When RBI deregulated savings bank interest rates back in 2011, it was expected that banks will start competing for retail accounts and hence the interest rate on offer will slowly rise.
This hasn't happened though, as most entrenched banks have continued to stick to their standard 3.5%-4% offering.
But, fortunately, there are some exceptions...
More...
In this post, I will list these banks that offer high interest rates on their savings accounts as well as share some two tricks for you to earn ~6.5% per annum with your existing bank account.
An important feature with saving accounts is their almost real time liquidity so I will not cover any option that promises high returns but limits real time liquidity dramatically.
Fortunately, even with that constraint, you still have three options.
Let's look at each of them one by one...
Option 1: Go to a Bank offering High Interest Rates
Your first option is to open up an account with one of the banks that offer high interest rates.
While the top banks have mostly stuck to 4% rate (SBI has gone as low as 3.5%), there are some banks who have broken the trend.
These banks are generally smaller and are hungry for growth...
And in pursuit of same, they are offering much higher rates than what are prevalent in the industry.
As of 2018, there are 7 such banks... All of offer greater than 6% per annum on at least one of their savings options.
Banks that offer Best Interest Rates on Savings Accounts
- RBL Bank
- DBS Bank
- Yes Bank
- Kotak Mahindra Bank
- Lakshmi Vilas Bank
- Indus Ind Bank
- Bandhan Bank
1. RBL Bank
Amongst these 7 banks, RBL bank offers the highest rates for most deposit amounts. RBL is rapidly expanding and is currently in aggressive pursuit of market share. Because of that, it is currently offering interests as high as 6.50% per annum to its customers.
Do note that the interest on savings accounts is calculated on a daily basis. And most banks have different rates on offer that change depending upon your exact end of day balance. RBL is no different.
Daily Balance for RBL | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 5.50% |
Between INR 1 lakh - 10 lakhs | 6.00% |
Above INR 10 lakhs | 6.50% |
RBL latest rates can be found here.
2. DBS Bank
DBS bank is another upcoming bank that's making huge waves recently. It is currently offering a really attractive rate of 7.0% for all balances less than 1 lakh. Nobody in market beats these rates for less than 1 lakh balances.
Daily Balance for DBS | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 6.00% |
Between INR 1 lakh - 2 lakhs | 7.00% |
Between INR 2 lakh - 5 lakhs | 5.00% |
Above 5 lakhs | 4.00% |
These interest rates from DBS are on an incremental basis i.e. even if you have a balance of more than 1 lakh, you will still earn 6% on first 1 lakh and earn reduced rates on the rest.
E.g. if you have 11 lakhs in your DBS account, you will earn 6% on first 1 lakh, 7% on next 1 lakh, 5% on next 3 lakhs and 4% on remaining balance.
The latest rates for DBS Bank savings account can be found here.
3. Yes Bank
Yes Bank was the original new-age bank. It was launched in 2004 and since then has continuously disrupted the Indian Banking sector. It currently offers a very attractive rate of 6% per annum on its accounts for >1 lakh deposits.
Daily Balance for Yes Bank | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 5.00% |
Between INR 1 lakh - 100 lakhs | 6.00% |
Above 100 lakhs | 6.25% |
You can check Yes Bank's latest rates on their savings account here.
4. Kotak Mahindra Bank
Kotak Mahindra Bank is amongst the largest private sector banks by market capitalization and currently offers an interest rate of up to 6% per annum for balances above 1 lakh.
Daily Balance for Kotak Mahindra | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 5.00% |
Between INR 1 lakh - 100 lakhs | 6.00% |
Above 100 lakhs | 5.50% |
You can check Kotak Mahindra's latest savings account interest rates here.
5. Lakshmi Vilas Bank
Lakshmi Vilas Bank, which was established back in 1926, currently offers 5.25% for balances above 1 lakh and 6.25% for all balances above 5 lakhs. In case, you want to have more than 10 crores in your savings account for some reason, they offer 6.50% per annum.
Daily Balance for LV Bank | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 4.00% |
Between INR 1 lakh - 5 lakhs | 5.25% |
Between 5- 10 lakhs | 6.25% |
Above 10 crores | 6.50% |
You can check their latest interest rates here.
6. Indus Ind Bank
Indus Ind bank is a leading private bank with more than 600 branches. They currently offer 6% interest for all balances above 10 lakhs
Daily Balance for Indus Ind | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 4.00% |
Between INR 1 lakh - 10 lakhs | 5.00% |
Above 10 lakhs | 6.00% |
Check Indus Ind's Savings Account offerings here.
7. Bandhan Bank
Bandhan Bank is the last bank in our list and they offer 6% per annum for all balances above 1 lakhs.
Daily Balance for Bandhan | Interest Rate |
|---|---|
Up to Rs. 1 lakh | 4.00% |
Above 1 lakh | 6.00% |
Check Bandhan's latest interest rates here.
Also Evaluate Payment Banks
Payments banks is new banking model being promoted by RBI off late.
These banks can open savings accounts that can accept deposits up to 1 lakh. They can't lend money but can offer all other facilities like ATM or a Debit card, mobile banking and net banking.
Some players have already launched their services with prominent names being Airtel, Paytm and India Post. But, the good news is that there are many more to come as RBI gave out 11 payment bank licenses.
Entities with Payment Bank Licenses
- Aditya Birla Nuvo
- Airtel M Commerce Services
- Cholamandalam Distribution Services
- Department of Posts
- FINO PayTech
- National Securities Depository
- Reliance Industries
- Sun Pharmaceuticals
- Paytm
- Tech Mahindra
- Vodafone M-Pesa
As these players launch their services, you can expect attractive offers, not only in the form of high interest rates but also in cashbacks and discounts.
Amongst the ones that have already launched their services till now, two stand out from an interest rate perspective - Airtel offers an interest rate of up to 7.25% while India Post offers 5.50% per annum.
Do note that these banks have additional charges on cash withdrawals or transfers to other banks e.g. Airtel charges 0.65% of the transaction amount for any cash withdrawal and 0.50% for bank transfers. These charges have to be weighed against the additional interest rate that you get.
In a way, if you want high interest rates, you have 8 banks (including Airtel Payments) to choose from.
Let's look at a quick summary...
Best Savings Accounts with Highest Interest Rates
Name | Up to 1 lakh | 1-5 lakhs | 5-10 lakhs | 10 - 100 lakhs |
|---|---|---|---|---|
RBL | 5.00% | 6.00% | 6.00% | 6.50% |
DBS | 6.00% | 7% for 1-2 lakhs 5% for 2-5 lakhs | 4.00% | 4.00% |
Yes Bank | 5.00% | 6.00% | 6.00% | 6.00% |
Kotak Mahindra | 5.00% | 6.00% | 6.00% | 6.00% |
Lakshmi Vilas Bank | 4.00% | 5.25% | 6.25% | 6.25% |
Indus Ind | 4.00% | 5.00% | 5.00% | 6.00% |
Bandhan | 4.00% | 6.00% | 6.00% | 6.00% |
Airtel Payments Bank | 7.25% | NA | NA | NA |
Option 2: Convert your existing account to a sweep account
If you have a savings account in one of the top banks in India, you are currently being offered a paltry 3.5%-4% per annum. This is true regardless of your balance with them.
Let's say, for the reasons of convenience or otherwise, you don't want to go to any of banks in the list above and open a new account with them.
So is there any other way if you want high returns while retaining your current bank? Yes, there is.
Enter Auto Sweep.
At its most basic, auto sweep combines a savings account with a fixed deposit account and gives you the best of both worlds. You get the high liquidity of a savings account and high returns from a fixed deposit.
How this works is that you define a threshold limit (or your bank defines it for you). Any additional money beyond the threshold limit will be automatically transferred to an FD and will start earning returns there.
Similarly, in reverse, if you make a transaction that's more than what's available in your savings account, your FD will be liquidated automatically and your transaction won't fail.
For example...
Let's say you have 2 lakhs in an auto-sweep account with a 25k threshold limit. In this case, 25k will stay in your savings account while 1.75 lakhs will be automatically converted to an FD.
If you spend more than 25k, the sum you need will be deducted from your FD. Essentially, you can issue a cheque of 1 lakh and it won't bounce as remaining 75k will be taken from your FD.
There are few aspects you should be aware of, before you convert your account into an auto-sweep account:
- There is a minimum threshold that's there for auto-sweep accounts. Some banks have the same threshold for everybody while others allow you to choose.
- If you get a choice, choose your threshold limit to be in line with your monthly expenses. This will ensure that you don't have to do frequent withdrawals from your FD.
- Auto sweep of excess balance is done in fixed blocks. Some banks do it in blocks of INR 5k or 10k while others have a much more flexible block of INR 1. Lower the block is, better it is from return perspective.
- The tenure for these FDs is typically 1 year but it can vary from bank to bank.
- The sweep-ins can happen on a First In First Out basis (FIFO) or a Last In Last Out (LIFO) basis. Most banks follow FIFO to maximize the returns, but some may follow LIFO too.
- The interest you will earn will depend upon the actual term of your FD. If your money doesn't get withdrawn for let's say 2 years, you will earn a much higher return on it compared to a scenario where it gets withdrawn after 7 days in a fixed deposit.
Auto sweep is a great facility for those who have a reasonably large amount in their savings accounts but they don't want to make use of any of the short term investment options available to them. Typically this is because they don't want their money to be locked-in even for a short duration as they may need it at any time.
It is also a good option with those with current accounts as they will normally earn no interest otherwise.
The good news is that almost all banks now have an auto-sweep facility. Different banks call it by different names, but they all have it.
HDFC bank calls it sweep-in, ICICI calls it money multiplier, Axis has named it as Encash 24 while SBI calls it as Saving Plus.
Ask your branch manager today to enable this facility for your existing account or alternatively, open up a new account with auto-sweep enabled.
Please note that some banks like HDFC offer a manual sweep-in facility. Essentially, you create a normal FD and link this FD to sweep-in.
This allows you to choose the exact tenure and hence you may take advantage of higher interest rates that are sometimes offered for odd periods like 1 year 31 days etc
However, the FD creation is not automatic in this case and you have to do same manually.
Option 3: Get a liquid fund with an ATM card
Ok. A liquid fund with an ATM card is not strictly a savings account...
...But for all practical purposes, it behaves exactly the same.
You get instant redemption as well as an ATM cum Debit card that can be used for shopping as well as cash withdrawals or balance enquiries from an ATM machine.
Essentially, this option offers almost as good a liquidity as any savings account, but with much better returns.
So who offers these liquid funds that come with an ATM cum Debit card?
As of 2017, Reliacen and DSP Blackrock are two fund houses who are offering instant redemption facility for any of their funds. However, when it comes to offering an ATM cum Debit card, only Reliance Mutual Fund has that offering as of now. They call it Reliance Anytime Money Card
Key Features of Reliance Anytime Money Card
- Cash withdrawal at all Visa enabled ATMs
- Electronic transactions at all merchant locations just like a regular debit card
- Daily ATM cash withdrawal limit of 50% of the balance or INR 50,000 whichever is lower
- Daily shopping limit of 50% of the balance or INR 100,000 whichever is lower
You can get this card if you are invested in one of the following Reliance funds
- Reliance Liquid Fund – Treasury Plan,
- Reliance Liquid Fund – Cash Plan or
- Reliance Money Manager Fund
You can go to Reliance Mutual Fund's website directly or invest via FundsIndia (who are actually calling it FundsIndia Super Savings Account) or Scripbox (who are calling it Any time cash).
This Debit card can be used at all ATMs and Point of Sales that accept a Visa Card. This means that you can use it just like any other normal debit card.
This card is offered by Reliance in partnership with HDFC and the card will be co-branded.
This option works out better than auto-sweep FDs if you make frequent withdrawals as returns from liquid funds are mostly constant regardless of exact duration. Essentially, you will get similar annualized returns both for a 1 day investment and a 1 year investment.
Also, there are zero account charges, no lock-in as such and no annual fee for the card as of now. And your annualized returns could be as high as 6.5-7% depending upon liquid fund returns, regardless of how frequently you withdraw your money.
Sounds too good? What's the catch?
The biggest catch is on the taxation. For a savings account, returns of up to INR 10k per year are tax-free. This is not the case here and tax for your short term returns will be levied at your actual tax slabs.
Second, there is no cheque book facility as part of this offering.
Further, though you can expect steady returns given that these funds invest only in instruments with less than 91 days maturity, the returns are market linked and are not guaranteed as such.
However, the best part about this option is that, just like option #2, that it doesn't need you to open a new account with a new bank. You can simply link your current bank savings account to your mutual fund account and start getting higher returns.
Should you even bother with all these options?
The answer to this question depends upon two things:
- How much money you normally keep in your bank account
- What's your tax slab
If you keep let's say 20,000 INR on an average in your account, an extra 3% is INR 600/year. For 1 lakh average balance, you will get 3000/year. You need to decide if that extra effort is worth the extra returns.
Also keep following in mind:
- If you are interested in opening up a new account (option #1), look at all account charges (i.e. annual debit card charges, cheque book charges etc). They should not be more than the additional interest you will make
- If you want an auto-sweep facility (option #2) or a liquid fund with ATM card (option #3) and if you are in the highest tax bracket, make sure that you are getting post tax returns that are higher than savings account interest you are getting right now.
This covers all that I had to say on this topic...
I have covered three different options you can avail of today to earn higher returns from your savings bank account. And two of these three options allow you to earn these higher returns without changing your bank.
I hope this post proves to be useful for you. Let me know if you have any questions...
