With major banks like State Bank of India, Axis Bank, HDFC Bank, and Federal Bank offering a mere 2.5% interest on savings accounts and even the highest rates from IDFC First Bank and IndusInd Bank barely touching 3%, the fact of the matter is that your liquid funds are barely bringing back any returns.
However, all of us need to keep liquid money handy for quick expenses, especially the ones that spring up on us unexpectedly. So, considering that in mind, is avoiding keeping money in savings accounts possible?
Personal finance experts point out that keeping substantial sums in a traditional savings account can be detrimental to your financial health. They say the market has alternative investment options designed to make your liquid money work better, offering notably higher returns.
Quick Look At Saving Rates Being Offered
As far as current rates go, the majority of the big banks offer a 2.5% interest rate. Players like State Bank of India, Axis Bank, HDFC Bank and Federal Bank only offer 2.5% interest on a savings account. While Punjab National Bank offers a rate that is two basis points higher, AU Small Finance Bank also offers a 2.8% interest on a savings account. Check table below:
Five Alternate Spots To Park Liquid Cash
Santosh Joseph, founder of Germinate Investor Services, suggests several options for parking liquid cash, aligning them with varying risk appetites and investment horizons.
For those seeking lower risk, he recommends liquid and money market funds, which typically offer returns between 5.75% and 6%. Investors looking for slightly higher returns with limited risk might consider arbitrage funds, yielding around 6.5%, or arbitrage income funds, which provide approximately 7.5% with additional taxation benefits.
For aggressive investors with a longer investment horizon, Joseph points to corporate bond funds and credit risk funds, both of which can generate returns of about 7.5%.
Mohit Gang, Co-founder of Moneyfront, suggests several options for parking liquid cash. Among his picks are Sweepable Fixed Deposits (FDs), offering a 6% return, providing both liquidity and a respectable interest rate.
He also recommends Liquid Funds, which are mutual funds designed for high liquidity and short-term investments. Additionally, Gang highlights Instacash Mutual Funds, allowing for quick redemptions, even on a Sunday. This facility comes with a limit of Rs 50,000.
How Long Does It Take To Withdraw From These Instruments?
These alternatives also manage to provide access to funds in less than two days. According to planners, Arbitrage Funds are redeemable withing two days. Arbitrage Income Funds, meanwhile, are redeemable within the next day after application.
Money market, Liquid Funds, Corporate bond funds along with Credit risk funds can also be accessed after one day. Instruments like Sweepable FDand Instacash are the most liquid among the lot as they are redeemable immediately.
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