Sunday, 25 March 2012

Savings Bank Account- Should You Keep Your Money?

grant cocrhrane
I may sound stupid if I say "Returns of Savings bank account and Fixed Deposits are almost same". This may sound stupid but the reality is "YES it could be possible".
Lets Dive Deep and Look into some facts and Figures:

Union Budget 2012-13: Finance minister has announced that interest up to 10,000 from SB account is exempted from Tax.
RBI-Deregulating Savings Bank Deposit Rates: This means the restriction of 4% interest on Savings account is no longer applicable. This also means Banks can offer higher interest rates for Savings Account. Thanks to the ongoing competition, Banks especially Private Banks increased the interest rates in no time to attract customers. For balance above 1 Lakh, YES Bank increased the interest rates from 4% to 7% and IndusLand and Kotak Bank increased from 4% to 6%.

Let us take couple of Scenario:
Naveen a Manager, working with Pharma company. He earns a decent salary and the sala gets credited to YES Bank every month. Naveen has got a bonus of 1.25 Lakh.He is confused and unable to decide if the money should be moved to PSU Bank Fixed Deposit or allow it be in YES Bank? PSU Banks are offering him 9% to 9.5% interest Rates.

Case 1: Naveen is in highest Tax bracket.
PSU Bank FD @ 9%: Returns will be 6.3 %( Post Tax).
YES Bank Savings Account @ 7 %: Returns will be 7 %( As interest earned is less than 10,000).
Conclusion: As Naveen is in highest tax bracket, it makes sense for Naveen to park his money in Savings Bank account @ 7% interest instead of going for Fixed Deposit @ 9%.

Case 2: Naveen is in 20% Tax bracket.
PSU Bank FD @ 9%: Returns will be 7.2 %( Post Tax).
YES Bank Savings Account @ 7 %: Returns will be 7 %( As interest earned is less than 10,000).
Conclusion: As Naveen is in 20% tax bracket, the returns PSU FD and Yes Bank are almost same.

Case 3: Naveen is in lowest tax bracket.
PSU Bank FD @ 9%: Returns will be 8.1 %( Post Tax)
Yes Bank Savings Account @ 7 %: Returns will be 7 %( As interest earned is less than 10,000).
Conclusion: Naveen should invest in PSU FD. It does not make sense for Naveen to keep his money in YES Bank.
Take Away:

• The scope of the article is to highlight the impact of recently made changes – RBI Deregulation and exemption on interest earned up to 10000 from Savings Bank Account.

• Try to compare returns of Auto Sweep facility before taking final call. Click here to know more about Auto Sweep facility.

Would you park your money in Savings bank account?

2 comments:

Savings Accounts said...

Flourishing savings accounts reflects positively on the credit score of account holders since it establishes their advanced money management expertise.

WealthUCreate said...

Hmmmmm....

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