Savings account rate cut: Bad times for small savers, time to shift?

Following India's largest bank State Bank of India (SBI), eight private banks have cut the interest rates of savings account within a week.

SBI, on July 31 had slashed the pricing for under Rs 1 crore saving deposits by 0.50% to 3.5%. After which, major banks, HDFC Bank, ICICI Bank, Axis Bank and five other banks followed the trend. 

Savings account, which is considered as the most basic financial product, has become a new "tool" for the banks to reduce liquidity post demonetisation period. It is best suited for salaried employees or people with a monthly income. 

Savings account become a better option if the interest rate is high. Which means, with banks reducing the savings account rate, small saver will have to face "bad times" ahead. 

Till now, savings account was earning interests in the range of 4-8%. Now, it has reduced to the range of 3.5%-5%, which is the lowest since six years. 

This news has come as a major drawback for small savers. On one side, before the roll out of Goods and Service Tax, the government had disappointed small savings schemes such as Kisan Vikas Patra and public provident fund by 10 basis points. On the other, now the banks have cut the rates on savings account to as low as 3.5%.

Time to move ahead?

Generally, small savers prefer to put their money in savings account or any low-risk small savings instruments like KVP, National Savings Certificate, Sukanya Samriddhi Account, PPF. However, these schemes still offer higher interest rates as compared to savings account.

Moreover, as compared to savings account, even payments bank and fixed deposits (FDs) offer more interest rates.

Here's a list of financial instruments which have higher interest rates:

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