NEENA ANAND
head-liabilities and product development, Lakshmi Vilas Bank
Savings accounts today offer customers an omni-channel experience, transactional convenience, and interest income on balance. Banks offer interest rates on savings accounts and other deposits in accordance with Reserve Bank of India (RBI) guidelines. Its directive to compute interest on a daily basis has benefited customers. But, we are in a declining interest rate regime and most banks, private and public sector, have reduced the interest on savings accounts and term deposits. This makes a strong case for sweep-out fixed deposit options. In this option, idle balance above a certain threshold in a savings account may be ‘swept into’ a fixed deposit. At first glance, this appears beneficial to customers, because interest payable on term deposits is higher than on a savings account. Here, the customers need to understand two things. One, the default tenure of the term deposit into which balance from the savings account are swept into; and two, the interest payable on the term deposits across all tenures, including below 12 months. A study of these rates may show the sweep-out proposition to be on par or only slightly better than savings account. Customers who maintain substantial idle balances in their savings account stand to benefit, if the interest offered on funds ‘swept out’ into deposits is indeed higher.
