(RBI) repo rate; it will also apply to short-term loans such as overdrafts and cash credit facility. State Bank of India implemented a new interest rate plan for big savings account deposits with a balance of more than INR 1 lakh and short-term loans. The changeover was announced in March by the top state-owned bank. Under the new rule, the SBI saving account interest rate will be tied to the Reserve Bank of India’s (RBI) repo rate; it will also apply to short-term loans such as overdrafts and cash credit facility.
To put it another way, if the RBI changes its repo rate – the lending rate at which banks borrow from the RBI – the interest rate on big SBI savings account deposits and the interest rate on short-term loans will change automatically. The new mechanism, according to the central bank, will aid in the more effective integration of the RBI’s policy rates into the banking system. SBI will be the first bank in India to use an external benchmark rate in addition to fixed rates, departing from the conventional practise of determining loan interest rates based on the Marginal Cost of Fund Based Lending Rate (MCLR).
What is a Repo Rate?
When banks want funds, they turn to the RBI. The RBI will lend the money to banks at a fixed interest rate. The Repo Rate is the interest rate charged by the RBI for lending money to banks. This rate, also known as the Repo Rate, is the cost for banks to borrow from the RBI. By linking the SBI Savings Account Interest Rate to Repo Rate, any change in the interest rate will be reflected automatically as and when the RBI changes the Repo Rate. As a result, there is no reason to suspect your bank. However, declining repo rates may be bad for many people who have a large sum in their savings account.
Alternatives to Savings Account
The savings account interest rate amounts to around 3% to 4%. Therefore, it is also advisable to check out the alternatives to a savings account. Moreover, it is always important to earn interest on your money whenever you can and grow your wealth. Moreover, as you are aware of, the Bank interest rates on savings account generally hover around the same interest range. Below are some of the options for individuals who are looking for an alternative to savings account:
- Initially, the worst error is to maintain idle cash funds. As a result, never save more money than you need.
- You can also experiment with a few banks that provide greater savings account interest rates. However, the higher the rate, the greater the risk.
- Also, it is advisable that you should never keep your idle cash or large sums of money in a savings account only for the sake of earning interest.
- Keeping large sums of money in a savings account can be risky at times. Considering the cards that are linked to your bank account, if you ever lose a card that is linked to your bank account or if your account is hacked, you might suffer a financial loss. As a result, it is important to understand that you should never store more cash than you need.
- You can look at Overnight Funds, which have little risk, or Liquid Funds (bit higher riskier than overnight funds). A few AMCs provide up to INR 50,000 in immediate redemption every day. As a result, I don’t believe liquidity will be an issue. Understand the risks involved, even with Liquid Funds, and make your own decision.
These are some of the alternatives to a savings account that you can consider before you put all your money into a savings bank account just to earn interest on it.
