Within hours of the Mr.Subbarao's announcement two of the private banks came with an advertisement about increase in Saving interest rate of full page in leading national news paper.
No doubt it will create a big hole in the profitability of some of the big banks balance sheet. But, will it really benefit account holders?
Let us evaluate:
If your average balance in a saving account remain at a level of Rs.1.00 Lac, you would get richer by Rs.166 per month and for balance more then Rs.1.00 Lac additional 50 basis points.
I think for an Lazy investor who holds such big balances in his savings account is not bothered of getting Rs.166.00 or Rs.500 per month. If he would have been really concerned might have shifted his money to Liquid funds offered by mutual funds.
These are the funds favorite with corporates but retail investor were never keen to invest in it. Liquid funds can easily fill in the gap between saving bank account and bank FD's. It gives you return more than saving account (Presently in the range of 8.5 - 9%). The only difference is you can access funds at 1 day notice i.e liquidity is available to you in 1 day instead of instantly in case of Savings account.
From safety perspective although it also bears the tag line "Mutual fund investment are subject to Market read offer document.....". But history of the fund prooves that it is as safe as your savings account the NAV of a liquid fund has never been negative for a single day in its history.(As it invest in the papers of maturiy less then 90 days)
So, as an investor if you are looking at the better returns then Saving bank should shift your surplusses to Liquid funds instead of settling at 4 or 6% of saving account returns. Additional returns can take care of your monthly telephone bills and LPG cost or a weekend with your family.