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ShareMumbai: Got extra cash which you won't need for a month? Letting it idle in your savings bank account is a better option than going for a fixed deposit.
That's because the interest rate being offered on fixed deposits maturing between a month and 45 days is actually lower than the 3.5% minimum savings bank rate. In some cases, banks may not even give you any interest on short-term deposits.
Take HDFC Bank, for example, which offers a 2.25% interest on deposits below Rs15 lakh for 15 to 29 days and only a 3% interest on deposits kept for 30 days to 45 days.
Its private sector rival ICICI Bank does not give any interest on deposits kept for seven days to 14 days and pays only a 3.25% interest for deposits maturing between 15 and 45 days.
Public sector State Bank of India (SBI) offers only a 3% interest on deposits maturing in 15-45 days.
Bankers point out that the savings bank rate is fixed by the government, so banks can't change it. But that's not the case with deposit rates.
"We may think that the savings rate has to come down but we can't tinker with it and why should we pay more than 3.5% for short-term money when we can borrow one day funds from the inter-bank call market at 3%?" said Anindya Mitra, senior vice-president, retail liabilities, HDFC Bank. Mitra said that companies, funds and high net worth individuals with a huge corpus usually park funds in these tenures.
"For companies, it's still the better option to keeping huge chunks of money in current accounts at 0%. Some companies which do not even have a bank account open an FD," he said.
The more money you park with banks for these tenures, the less interest will you get. ICICI Bank, for instance, will give you only 1.5% interest on deposits from Rs15 lakh to Rs1 crore in the 7-45 days' basket. Canara Bank will pay 1% for deposits of more than Rs1 crore for seven to 14 days and only 2% for deposits kept for 15 to 30 days.
Bankers say that thesystem is flush with liquidity and they don't need short-term cash. "These funds were used to give short-term bridge loans for companies just before their actual loans were being passed. These loans were in demand, particularly when the economic growth was brisk, but now that's not the case," an SBI official said.
