Last week, I met someone who wanted to discuss investment options with me. While I don’t do consulting of this nature, he happened to be in my distant family. Fair enough.

I went in wondering if he will ask me about stock investments or may be some complex derivative products, indeed if I could help him play the F&O markets or if commodity futures were something he wanted to look at. 20 minutes into the conversation came his first and the only investment related question for the evening – What is the best savings bank account in India?

Really! Are you kidding me!! It was a Wednesday evening and I had driven all the way to your house and this is what you want to ask – Best savings bank account. I don’t want to talk any more about how the rest of the interaction went but I think he was convinced that ICICI Savings bank account had a slight edge over SBI. Yes we took the 4% – 6% interest rate issue into consideration. Not sure if he has opened an account yet. He seemed a little risk averse. Anyways, I did not find it appropriate to bring up stocks. Just for fun though, I wanted to hear someone convince him about the merits of derivative swaps. Nevertheless, when I spoke about the evening to my office colleagues, instead of laughing about it they started a discussion. In this, I realized something odd – Savings bank accounts do spark a debate. Here is the result of what we did over the weekend:

Note:

  • We have selected the banks below to represent what we believe reflects the best mix of various options.
  • We looked at SBI,  PNB AND IDBI before including Bank of India, which is the only public sector bank in our top 6.
  • Amongst our team, we have an account in each of the banks below.
  • The contents of this article reflect our collective views. Our views could differ from others who conduct a similar study.

Savings Bank Account – Interest Rate & Bank Charges

(Click on the image to enlarge)

After RBI’s deregulation of savings bank deposit rate, some banks have started offering 6-7 % on savings bank account deposits as compared to 4 % earlier. These are Yes Bank (7 % on daily balance above Rs 1 lakh and 6 % on daily balance below Rs 1 lakh); Kotak Mahindra Bank is offering 5.50 % on balance below Rs 1 lakh and 6 % on balance above Rs 1 lakh). Clearly, as far as high interest rate is concerned, these two banks are way ahead of their competition.

Other key points to consider before switching banks:

  • Minimum Balance: Many private sector banks like Axis, HDFC and ICICI Bank require customers to maintain a minimum monthly average balance of 10,000 while a lot of public sector banks like Oriental Bank of Commerce, Punjab National Bank, and now, the State Bank of India don’t have such a requirement. Failure to maintain a minimum balance invites a penalty which is typically about Rs. 750 for a 3 month period. [2] See below for a note on minimum balance calculation.
  • Transaction Charges:  Before choosing a savings account, make sure that you are aware of all charges fees. Most banks now charge extra for transactions or services. For example – Rs. 100 for the issuance of a duplicate passbook and Rs. 50 (plus taxes) for the regeneration of your debit card PIN.

In our observation ICICI and Axis Bank are particularly severe with respect to charges and non maintenance of average balances.

  • Reach and service quality of the bank: Another important factor you should look at before choosing a bank is its service quality and reach. In this regard your individual needs and preferences will be an important consideration in choosing a bank:
      1. If you mostly bank online – Choose Bank of India. Their online banking platform is as good as any and they have the least minimum balance requirements + the least severe service & penalty charge for non maintenance. Highly recommended also for – PPF[1] accounts and for opening and linking your fixed deposits to your savings bank account.
      2. If you need to visit a branch regularly (i.e. deposit and withdrawal of large amounts of cash) – Choose a bank which has branches across the country and avoid public sector banks (not to generalize but we can vouch for bad experiences at – SBI, Bank of India and PNB. These include never-ending lunch hours, lack of clarity on responsible officer and some of the most badly maintained branches. At the same time Yes Bank and Kotak Mahindra, lack coverage in this regard.
  • If you want a linked demat/ share trading account – Despite slightly high charges, nothing beats ICICI’s 3-in-1 account which links your savings bank account to your trading account. While the brokerage charges are slightly on the higher side, if you are more of an investor than a trader and want to buy and hold high quality blue chip stocks, we highly recommend ICICI bank.
  • Credit Cards – Ideally, just avoid credit cards completely. If you must get one, NEVER get it from the same bank where you have your savings bank account.

Our word – If you don’t mind paying just a little extra for services and more importantly, if can stay disciplined with maintaining monthly balances – Choose ICICI Bank. For everything else, there’s Bank of India.

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[1] PPF – Public Provident Fund is one of the best investment options these days – earning a tax free return of 8 % p.a. for annual deposits of up to Rs. 150,000). Anyone will be well advised to park Rs. 100,000 every year in a PPF account to earn Rs. 8,000 per 100,000. So if you are depositing Rs. 100,000 every year in PPF, then by the 5th year you will be earning a tax free interest income of Rs. 40,000 (Rs.  8000*5).

[2] Banks typically calculate Quarterly Average Balance by dividing the Sum of Daily Closing Balance for the quarter by the Number of days in the Quarter i.e. 90 days. QAB = (Total of all the EOD closing balance)/(number of days in quarter)