Andhra Bank announced that it is slashing the interest rate on its saving accounts to 3.5% from 4% with effect from September 15, 2017. This move follows the interest rate cuts of various other competitors in the market. Many public sector banks in India have lowered their interest rates in order to reduce their cost of funds and promote optimal investment of funds lying unused in saving accounts.
Andhra Bank will now offer an interest rate of 3.5% for savings accounts with deposits less than Rs.50 lakh. For saving accounts with deposits higher than Rs.50 lakh, the interest rate will continue to be 4%.
Many public sector banks including the State Bank of India (SBI) have cut their savings account interest rates to ensure that account holders invest in high yield investments rather than keep their money idle. On 31 July, 2017, SBI announced that it is reducing savings account interest rate to 3.5% from 4% for accounts below Rs.1 crore.
Among the private sector banks, HDFC and ICICI both offer 3.5% interest for saving accounts with deposits Rs.50 lakh and less. For accounts with deposits above Rs.50 lakh, these banks offer 4% interest rate. Among the banks offering high interest rates for saving accounts, Yes Bank tops the list with 5% for accounts below Rs.1 lakh and 6% for accounts with deposits between Rs.1 lakh and Rs.1 crore.
According to the RBI guidelines, banks are allowed to lower the interest rates. These guidelines also dictate that banks can either have a uniform interest rate or differential interest rates based on the deposit amount in a savings account.
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