SBI's new interest rate plan: Large savings accounts to earn 0.25% less

[billubakra]

The State Bank of India, in a first, starts linking its loan and deposit rates for large accounts to the Reserve Bank of India (RBI's) repo rate from today. The new interest rate plan applies only to savings accounts deposits with a balance over Rs 1 lakh and short-term loans. While this rule is expected to make loans cheaper, some SBI customers will see the interest rate on their savings bank account dip. Here's all you need to know about the new regime:

What has changed?

Indian banks have hitherto finalised their loan interest rates by following a system of internal benchmarks, including Prime Lending Rate (PLR), Benchmark Prime Lending Rate (BPLR), Base rate and Marginal Cost of Funds based Lending Rate (MCLR). But in March, the country's largest bank had announced that it would be linking its savings deposits rates and short-term loans to the RBI's repo rate from May 1 with an aim to ensure faster monetary transmission.

So the interest rate applicable on SBI savings account deposits over Rs 1 lakh as well as that applicable on short-term loans will now change automatically every time the regulator hikes or lowers its repo rate, which is the lending rate at which banks borrow from the RBI.

It is the first bank in the country to adopt an external benchmark rate to the fixed rates. The SBI believes that the new system will help in more efficient integration of RBI's policy rates in the banking system.

How does this affect SBI customers?

To begin with, large SBI savings deposit accounts will earn lower interest as compared to those with lower balances. According to SBI's website, the interest rate on savings bank accounts with balances above Rs 1 lakh will be 2.75 per cent below the RBI's repo rate. Since the latter currently stands at 6 per cent after two back-to-back cuts, the effective interest rate on large accounts works out to 3.25 per cent.

But till April 30, the SBI was offering 3.5 per cent interest for deposits up to Rs 1 crore and 4 per cent for deposits above Rs 1 crore. The good news is that the new development does not affect small accounts - SBI savings bank account holders with less than Rs 1 lakh balance will continue to earn 3.5 per cent interest on deposits. "SBI will exempt savings bank account holders with balances up to Rs 1 lakh and borrowers with CC/OD limit up to Rs 1 lakh from this. This has been done to insulate them from the movement of external benchmarks," said SBI, which controls nearly a quarter of the banking system.

Similarly, all cash credit accounts and overdrafts with limits up to Rs 1 lakh - short-term loans - will now be linked to the RBI's repo rate, plus a spread of 2.25 per cent. This takes the total interest rate to 8.25 per cent. In addition, the bank said it would also charge a risk premium "over and above" the floor rate, as per the current practice.

Why has SBI made these changes?

In December 2018, the RBI had proposed that floating interest rates on personal, home, auto and micro and small enterprises (MSEs) loans should be linked to external benchmarks like repo rate or treasury yields, from April 1, 2019. Although the regulator subsequently deferred the deadline, saying it will hold further discussions with banks on linking interest rates, SBI has taken the lead in this direction. It remains to be seen if other banks follow its lead.

SBI's new interest rate plan: Large savings accounts to earn 0.25% less

Vo din door nahi jab SB deposits will get no interest at all.

 

[whitestar_999]

What's the point in depositing 1 lakh in savings account anyway in a bank that offers 3.5% interest?Either save such amount in a bank like kotak that gives 6% interest rate over 1lakh or invest in MFs/open FDs. Putting 1lakh in anything that gives below 5% interest effectively means reducing the value of your savings amount over time.

 

[billubakra]

What's the point in depositing 1 lakh in savings account anyway in a bank that offers 3.5% interest?Either save such amount in a bank like kotak that gives 6% interest rate over 1lakh or invest in MFs/open FDs. Putting 1lakh in anything that gives below 5% interest effectively means reducing the value of your savings amount over time.

Liquid cash. Mf/open fds are not that liquid.

 

[whitestar_999]

Liquid cash. Mf/open fds are not that liquid.

Then keep money in kotak bank savings account.Also you should not keep so much money in liquid form because that indicates your investments are not good which in turn means your future earnings are in bad shape.

 

[billubakra]

Then keep money in kotak bank savings account.Also you should not keep so much money in liquid form because that indicates your investments are not good which in turn means your future earnings are in bad shape.

Even if I had a million dollars, I wouldn't put in a private bank in India. These are not "banks" just institutions waiting to fck you every now and then.
What if in the middle of the night I need a lac rupee's? Where would I go then? Mfs, fds aren't gonna help.
Explain "so much money"? Explain some good investments?
This might matter from person to person but atleast a lac in the savings bank is necessary. You never know when the shit hits the fan.

 

[whitestar_999]

Even if I had a million dollars, I wouldn't put in a private bank in India. These are not "banks" just institutions waiting to fck you every now and then.

Don't mind but that is why India will remain a developing nation with majority of its population living in poverty for next few decades/century while China races even further ahead. Kotak is not some "roadside jhumri tallaiya bank" but one of the top 5 pvt banks in India. Furthermore RBI guarantees your deposit safety(upto 1 lakh) in all scheduled commercial banks whether sbi,pnb,icici or kotak so if you are afraid of kotak bank then you should be afraid of any other bank too.

Financial advisors recommend anywhere between 3-6 months of your usual monthly expenses in liquid form(so if your monthly expenses are ~30k then you can keep 1-1.8lakhs in savings account).

Only good investments that can withstand the negative impact of inflation over decades are property & shares/MF. Anything else is either not worth it(aka savings account/FDs) or just barely makes the cut(PF/pension plans etc).

 

[billubakra]

@whitestar_999
Don't mind but that is why India will remain a developing nation with majority of its population living in poverty for next few decades/century while China races even further ahead. Kotak is not some "roadside jhumri tallaiya bank" but one of the top 5 pvt banks in India. Furthermore RBI guarantees your deposit safety(upto 1 lakh) in all scheduled commercial banks whether sbi,pnb,icici or kotak so if you are afraid of kotak bank then you should be afraid of any other bank too.
Lol kahan ke baat kaha le geya yaar. What I meant was that I hate these private banks because saale prioritize only high worth customers+their charges+calls for li/gi and what not+banks like sbi match them, well almost, in terms of facilities so why not public banks? And how will majority of people live in poverty if one chooses public banks over private one's?

Financial advisors recommend anywhere between 3-6 months of your usual monthly expenses in liquid form(so if your monthly expenses are ~30k then you can keep 1-1.8lakhs in savings account).
Which financial advisor? What was his logic behind this? From personal experiences, health and stuff, I think minimum lac is must. I sometimes have only Rs. 80 in my bank account lol but try to keep as much as I can

Only good investments that can withstand the negative impact of inflation over decades are property & shares/MF. Anything else is either not worth it(aka savings account/FDs) or just barely makes the cut(PF/pension plans etc)
Couldn't agree more but no money for property, my parents had a 2 marla land which they sold 10+years ago because the rates decreased thanks to state government policies, la*de lag gaye

 

[whitestar_999]

Lol kahan ke baat kaha le geya yaar. What I meant was that I hate these private banks because saale prioritize only high worth customers+their charges+calls for li/gi and what not+banks like sbi match them, well almost, in terms of facilities so why not public banks? And how will majority of people live in poverty if one chooses public banks over private one's?

Pvt banks have much better services,try canara bank apps(a friend has the bad luck of trying them) or corporation bank internet banking(another friend used it a few times to learn never to rely on it) & I assure you you will never dare to open an account there in future.SBI is probably the only public bank with comparable services but then it is only comparable & not better plus it has lower interest rates while kotak offers more.Even though ICICI,HDFC & Axis offer same interest rates but their services are much better,nothing beats HDFC cards in terms of discounts/offers/reward points,ICICI debit cards were the first to use grid security pin on their debit cards & Axis bank also offers similarly good service. Kotak 811 is the only card that can work internationally(online transactions) without any minimum balance requirements & still offer 6% interest over 1 lakh.

Which financial advisor? What was his logic behind this? From personal experiences, health and stuff, I think minimum lac is must. I sometimes have only Rs. 80 in my bank account lol but try to keep as much as I can

Emergency Funds – Why have it and where to Invest It

Couldn't agree more but no money for property, my parents had a 2 marla land which they sold 10+years ago because the rates decreased thanks to state government policies, la*de lag gaye

Why equity beats property - Times of India

It was 1999. My boss was retiring and wanted to sell his equity shares. I unsuccesfully tried to convince him to hold on if he did not need the money immediately. Finally, I bought 200 shares of HDFC Ltd from him at the then market price of ₹100 each. Around the same time we bought a house in Navi Mumbai. It was about 6 km from my then office, and in the lane next to the kids’ school. We took a loan and paid ₹20 lakh for it. We still own the place.

The shares of HDFC Ltd paid us dividends every year. The shares split further and bonus shares were offered. Without an additional rupee of investment, we now own 2,500 equity shares. At the current market price of ₹2,300, this investment is worth ₹57.5 lakh. That is a compounded return of 32% per annum over 20 years. If we did a comparable calculation for the house, its compounded return is about 12% per annum. The house appreciated about 10 times in value over 20 years. The equity shares appreciated 287 times in the same period. Buying property is not better than buying equity.