Should You Keep Your Money In Savings Accounts With A 7% Return On Investment?

 Should You Keep Your Money In Savings Accounts With A 7% Return On Investment?

Most senior citizens keep some of their money in savings accounts for routine spending and unexpected expenses. Does it make sense to keep your money in a savings bank when so many banks offer high rates of interest on savings accounts?

People normally want profits while investing, and returns are always inversely correlated with risks. Although equity carries greater risks, it has the potential to offer higher profits. On the other hand, a fixed deposit (FD) has lower returns than equity because it is thought to be quite safe.

This is another justification for why older investors typically prefer fixed deposits to alternative high-yielding but riskier investment options.

However, seniors also put some of their money in savings accounts to cover routine cash flow demands as well as potential unforeseen emergency needs.

7% Savings Bank Interest

The bigger banks are currently offering a return of 6.25–6.5% on fixed deposits as a result of the repeated increases in the repo rate, which triggered an increase in deposit and lending rates at the same time. Seniors receive an additional 0.5% on these deposits.

However, certain banks are currently giving high interest rates of up to 7% on savings bank deposits, despite the fact that major banks like the State Bank of India only give a 2.7% interest rate on savings accounts.

For instance, Kotak Mahindra Bank recently introduced the ActivMoney feature, which automatically transfers funds over a threshold to an account that functions similarly to an FD and pays a rate of interest of 7%. The extra advantage of this feature is that there are no fees associated with early withdrawals from the FD, enabling customers to withdraw their whole balance at any time.

Therefore, the question that arises is whether you should take advantage of the opportunity to earn 7% percent annually on your savings account.

Few banks offer high interest rates on savings accounts to entice new consumers, according to Renu Maheswari, a chief executive officer and principle advisor at Finzscholarz Wealth Manager and a Sebi-registered investment advisor. Additionally, it is an excellent approach for customers to use the high liquidity facility with profitable returns.

 Safety Aspect

Your capital has been safeguarded even if the bank is not a commercial bank with a scheduled status if it is registered with the Banking Authority of India. Like any other scheduled commercial bank, small finance banks (SFBs) are governed by the RBI. They must also abide by the rules established by RBI.

SFBs also have access to the same Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance coverage of up to Rs 5 lakh when it comes to the danger of losing money.

Arijit Sen, a Sebi-registered expenditures advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm, says that as a result, "Your deposits, including your savings account, FDs, recurring deposits, and current account in SFBs are equally insured under DICGC, to feed up to Rs 5 lakh per bank per depositor in the event of any bank failure and/or default."

Keeping more than Rs 5 lakh in any of these accounts is therefore not advised

Maheswari cautions against using a savings account as a vehicle for investing, nevertheless. Use it as a substitute for liquid assets. Don't fall for the other items that these institutions are offering either, she advises.