Impact of De-Regulation of Interest Rate on Saving Account

On 25th October 2011, RBI announced deregulating of interest rate on saving account. It came as a pinch of salt on existing wound for the Banking industry.  Immediately we hear Yes Bank with almost negligible retail customer base announcing rate hike to 6%, this was followed by Indusind Bank and Kotak Bank. We have not seen any large bank even giving hint of any change in rate as of now.

How many times in your life have you changed your bank account & what was the reason for the change? Change in city of residence, relocation within the city making accessibility to your bank difficult, bad service consistently. In how many bank do you operate saving accounts? Maximum 2-3.

There is a cost involved in changing of bank account – you have your demat / trading account linked with your saving account, your utility bills / credit card bills, ecs linked; so a change in saving account means lots of paperwork. For those looking for opening another saving account, it would mean more files and records.

Most large bank with high CASA ratio would postpone the idea of hiking interest rate on saving account, but I would not be surprised to see 6months down the line some of this large banks reducing rate on saving account for account with average balance let say Rs. 25000/- or Rs.50000/-. I see a rationalization of saving account interest moving up or down basis account type (higher minimum balance – higher rate).   We already have banks offering saving account where balance above a said amount (let say Rs.10,000/-) would immediately earn FD return.

The next 6 months will bring a lot of changes in saving account offering, but its impact on the banks margin is questionable. We may also see no interest on saving account with zero balance, salary account. This will also impact the short term FD market.

Investment Options

What comes to your mind when one asks you options for investment? The most common that most of us would suggest, broadly are as follows – Equity, Bond, Gold, Real Estate. But I am sure rarely people will suggest you to invest into your goals – Short term / Medium term / Long term.

Let us see one investment option which if done with proper homework would not only turn out to be investment decision to cherish, but also can provide regular income. Many have tried the simpler product of the option – Real Estate. People buy land / constructed house / Flat and rent them. This is nice way of regular income and a good way of growing your wealth with the property value appreciating over medium to long term.

So if everyone is aware of it, why am I talking about it? Because there is one option that people have not explored – Holiday Home. There are lots of places within India, in and around us that have not been explored. So if you have got cash in hand (you can also look for 60% - 70% of the amount from Bank loan) and looking for investment options – Keep this in mind while evaluating other options.

Today people are looking for large space where they can go in groups with family / friends at affordable price. So if you have space at place with beautiful scenery, good space for outdoor spots, with all the amenities that one finds at his/her home. With the increase in the customer base of the likes Mahindra Holidays, Country Club; you should not be surprised if they pay handsome for your property.

With the increase in online purchase of holidays and the advent of website like snapdeal.com, dealsandyou.com, marketing the property has become much easier and less costly.

I am exploring more details and data on the topic, would update you all ASAP!!!