You shop for the highest savings account interest with low minimum balance requirement as your existing savings account is paying only 4%. What are your options? Beware of banks that offer high savings interest rate for a limited time and those having account closing fees

YES Bank, Kotak Mahindra Bank and IndusInd Bank have been attracting customers with the lure of higher savings account interest. These banks have reported huge increase in savings bank deposits as well as customer base. Bigger private banks like HDFC, ICICI, Axis and nationalised banks are still offering only 4% interest even after the RBI (Reserve Bank of India) deregulated savings interest rates since October 2011.
 

Moneylife decided to visit some banks as a prospective customer to find out about savings account, fixed deposits (FDs), Flexi FD, recurring deposit (RD), debit cards and also Know-Your-Customer (KYC) requirements, lockers, online access, transfer, etc. The purpose of the visits was to check out the basic facilities for the smart saver. Many customers want best interest rates, low minimum balance requirement, no-fee debit card, etc without getting overwhelmed with add-on product benefits that they may never use. We will have series of articles for helping the smart saver.
 

It does make sense to get high interest rate on a savings account especially with the government allowing Rs10,000 savings account interest to be tax-free from the current financial year. Till the last fiscal, the entire saving account interest was taxable even though there is no TDS (tax deductible at source).
 

Here is an important finding. The ability to waive the minimum balance requirement of Rs10,000 is possible with smaller private banks like YES, Kotak Mahindra and IndusInd by opening FDs of certain amount. Ensure that you see the waiver of minimum balance requirement in writing and not orally promised by a relationship manager (RM). Violation of the minimum balance requirement can lead to heavy penalty of up to Rs350 per month. Ironically, the IndusInd RM did not accept the waiver of minimum balance requirement even though the bank’s own website clearly mentions about it.
 

IndusInd Classic Savings account is supposed to waive off the minimum balance requirement by opening an FD of Rs50,000. The RM’s reasoning for not offering the Rs10,000 savings balance waiver was that a Classic Savings account is not offered by their Prabhadevi branch in Mumbai, as it is A+ category branch (no such category specified on the IndusInd website). Unconvinced with the answer, we asked him FOR MORE details. The final offer made by the RM over the phone was that they will waive the minimum balance requirement for two years and after that waiver can be done only by having an FD of Rs10 lakh. Clearly, they were not as interested in getting business at higher saving bank interest rate like YES and Kotak Mahindra Bank.
 

The waiver of the minimum balance of Rs10,000 is not possible with bigger private players like HDFC, ICICI and Axis Bank even if you open FDs. HDFC Bank’s current and savings account (CASA) is 45% of its total deposits, which means there is less incentive to offer higher interest rates or waiver of saving account minimum balance requirement. 

Moneylife’s visit to YES, Kotak Mahindra and IndusInd bank revealed following:
Savings account interest rates can drop based on the trend of reducing rates for FDs. So far, these banks have held on to the rates. YES Bank is a good option, but it has a closing fee for savings account. Ratnakar Bank offers 5.5% savings interest, but specifies a minimum balance of Rs5,000. FirstRand Bank offers 7.25% interest for Platinum savings account, but needs a high minimum balance (Rs1 lakh).
 

Beware that some banks that may offer higher interest rate for only one quarter just to attract customers. Cosmos Bank offered a higher savings interest rate of 6% only for one quarter (January-March 2012). The big displays at the bank branch advertising increased savings rate were followed by reducing the savings interest back to 4% without the same zeal to convey the message to customers. The notice was put at the branch and ATM, which many failed to read. The result was customers were caught off-guard with the savings rate falling from 6% back to 4%. Some customers kept high balance in savings account only to find that interest for April-June 2012 was only 4% p.a. The bank profits while the customer is unaware of the rate reduction. Even if they are aware, customers may be reluctant to move funds to another bank or FD account.
 

Read this space regularly for more articles on short and long-term FD, Flexi FD, RD, debit cards, Know-Your-Customer (KYC) requirements, lockers, RTGS, NEFT, online access and transfers, etc.