The Reserve Bank of India deregulated the interest rate on savings bank account with effect from 25.10.2011.According to the new directive-

• A uniform interest rate has to be offered up to a balance of Rs. 1 Lakh.
• For savings bank balances of above Rs. 1 Lakh, banks are free to offer differential interest rates provided the same rate is given to all customers of the bank without any discrimination.

As a result of this, some commercial banks have hiked their savings bank interest rates above the earlier stipulated 4% pa (see table) and many other banks are likely to follow suit soon.

These deregulated interest rates already exist in many other Asian countries like Hongkong, Nepal, China, Srilanka etc.

In addition to this, Budget 2012 exempts savings bank interest earned of upto Rs 10,000/- from income tax which is an added positive.

How this will help the investors and our economy.

• India is a savings economy and 85 % of the savings deposits come from the household sector. Higher SB rates will encourage more savings from this sector.
•  It would also benefit the retirees and pensioners who primarily depend on the interest income.
•  It would also provide a relief to the investors who have been earning a negative real rate of return due to the prolonged high inflation in the country.
• More investors opting to keep money in savings would boost the deposit base of banks resulting in overall financial growth of the economy.