Senior citizens, it seems, are clearly enjoying the fruits of the freeing of interest rates on savings accounts. After the Reserve Bank of India deregulated savings bank interest rate in October, banks like Kotak Mahindra, YES and IndusInd started offering higher returns (around 5-7%) on savings bank accounts. Until then, banks were mandated to offer 4% on savings deposits.
Rana Kapoor, managing director and CEO of YES Bank, says: “It’s the senior citizens who take note of the interest rate differential first. The new generation, which has more than one account and access to electronic channels like internet to get information and compare products, is the first to move.”
“New customers belong to various segments – corporate salary accounts, small-scale enterprises, self-employed professionals and salaried individuals,” adds KVS Manian, president, consumer banking at Kotak Mahindra Bank. “The response to the hike in our savings bank rate has been reasonably good, both in terms of new customers and our existing customers. Ever since we increased our rates to 6% on domestic savings deposits, our rate of acquisition has been hovering at around 80%.”
In the December 2011 quarter, the CASA (current account and savings account) deposits of these banks registered a substantial growth. For instance, YES Bank’s CASA stood at 5,913.5 crore at the end of December 2011, compared to 4,838.8 crore in the previous quarter. Similarly, Kotak Mahindra Bank’s CASA rose from 9,355 crore as of September 2011 to 10,615 crore in the December quarter.
Now, higher returns act as a huge incentive for customers to switch banks. However, should it be the sole criterion? Not always, say financial planners, though it is an important parameter. Here are some factors you need to take into account before taking the call:
Asses your situation
“Senior citizens do maintain high balance in their savings bank account for their regular expenses. Hence, they can consider earning some extra returns on their balance in the account by switching their bank,” says certified financial planner Pankaj Mathpal, CEO, Optima Money Managers.
In case of smaller sums, the absolute interest amount earned will not be lucrative. Since senior citizens prefer to keep aside a sizeable amount to take care of any medical or other emergency, earning 2-3 percentage points more would seem attractive. However, the rule may not be applicable to youngsters.
“I don’t see why youngsters should keep large sums in savings account instead of directing the same to other investments products meant for parking short-term funds,” says Harshvardhan Roongta, CFP and principal financial planner at Financial Suraksha.
Those who do not need a large amount of cash at their disposal would be frittering away the opportunity to earn considerably higher returns through other instruments like mutual funds or fixed deposits if they keep the money in savings account. Also, remember, the rates are subject to change, and hence, could also see a drop in future, depending on the situation.
Convenience is the key
The profile of the bank you would be migrating to will also matter. For example, the bank may be a believer of a strong virtual rather than physical presence. Thus, it may boast of a range of technologically-advanced services and channels, but fewer branches, and may not have one in the vicinity of your residence.
“Senior citizens may not be tech-savvy or comfortable with advanced banking systems like internet banking or even ATM transactions. They must keep this in mind before switching to new-generation banks as they focus more on hi-tech services compared to branch-level service,” adds Mathpal.
This would be applicable to all those who prefer face-to-face interaction with bank officials; more so if they are availing of locker facilities. Even if a bank does not have a branch, ensure that it has an ATM close to your place. On the other hand, for the younger generation and others who are tech-savvy, proximity to the branch need not figure on their priority list.
They would need to assure themselves that the new bank provides all the services on internet, phone and mobile platforms. After all, if you are a net-savvy individual but the bank lacks strong internet banking services, it could cause a lot of inconvenience. Likewise, if you are a frequent traveller, ascertain whether the bank’s mobile banking services are up to the mark.
Relationship with the existing bank
Another critical parameter, this will help you gauge whether moving your account from the existing bank to a new one would be worthwhile. Now, your bank account could be linked to your online trading account and home loan (for paying EMIs); also, you may have given an ECS mandate for mutual fund SIPs (systematic investment plans) or making utility bill payments. Switching over to another bank would mean setting up all these transactions all over again and thus a lot of paperwork.
“A differential of 200-300bps should be substantial in absolute terms to justify the switch. For instance, an average balance of 1 lakh for one year will yield an additional 2,000 per annum, and hence insignificant in this context,” says Roongta. Similarly, if you have been relying on your existing bank for investment advice, a change in advisor due to migration to another bank could alter your investment plans. Therefore, you need to satisfy yourself about the quality of advisory services, too.
Keep an eye on the charges
Finally, you would do well to compare charges levied by the current and prospective banks. Ensure that the latter’s charges don’t offset the higher returns on offer. Scan the schedule of charges available on the websites carefully to avoid unpleasant surprises later.