A lot of us do have money exceeding the general requirements
of day to day (month to month would be more appropriate) in our salary/savings
accounts, which lies idle and earns a mere 4% interest rate which is the most
common interest offered by most of the banks. We might want to let it earn a
little more but are afraid of locking in the money to some deposit, else should
some need arises, we would run short of it, if the deposit is not broken.
Fret not, this article will tell you the options you have to
earn more than the idle money is earning now.
Open account in banks offering higher rates
Few years ago, the interest rate was limited to 4% on
savings bank accounts. However, now the limit has been removed by the Reserve
Bank of India and banks are free to offer the rates they like. The old and
bigger banks like SBI, PNB, ICICI, HDFC already enjoy a large customer base
hence have not shown liking to increase the rates they offer.
(image source google images)
However, the newer
banks like IDBI, Bandhan(newest) and few
more offer high interest rates, upto 7% on savings accounts. It would be a wise
decision to open an account in these banks and put your money in these
accounts.
Use sweep in/ flexi deposit schemes
Talking about the bigger banks, they offer an interesting
scheme for people like you. People generally don’t go for fixed deposits as
their money will become inaccessible until the deposit matures. To overcome
this habit, banks like SBI, HDFC, Axis etc. offer deposits in which it is easy
to transfer the amount required from the fixed deposit to the savings account
without breaking the entire fixed deposit.
(image source google images)
SBI calls it flexi deposit or Multi
Option Deposit (MOD), HDFC calls it sweep in/sweep out and so on… the banks
name it differently. Your fixed deposit continues to earn the interest on the
remaining amount. Moreover in SBI, if opted, the scheme automatically opens a
fixed deposit with the amount above 25000 in the savings account by default. It
would be better to check with your bank about the details of such scheme and
its functioning.
Invest in short term debt/liquid mutual funds
There are other types of mutual funds besides equity mutual
funds. Debt funds mainly provide debt to the companies, so return on these
funds is almost sure. Moreover these schemes easily offer 8% and above returns.
(image source google images)
Short term debt funds and liquid funds don’t charge any exit load (which is generally
1%) after the duration of 90 days, however it depends on fund chosen. If chosen
carefully, these are also a good option to increase your earning with the idle
money. If a direct mutual fund is chosen the return is increased by 0.5-1%. Click here to read how to invest in direct funds.
NPS Tier II accounts
This is a new option and is only for those who avail the facility of NPS (New Pension Scheme). They have the option to open a tier II account with similar functions as tier I with the main difference that there is no tax relief BUT one can invest and withdraw the amount invested in it anytime with no charges. You get to choose the pension fund house and allocate the amount in the schemes you desire among equity, corporate debt and government bonds so you have to power to decide the risk (and return).
Open short term accounts
This is the most simple and least recommended method because
of the work involved. Here you need to choose amount yourself and open fixed
deposit or recurring deposit for short periods. You would earn higher interest
but it would require you to constantly monitor all the deposits and reinvest
redeem them periodically. Moreover, in case of emergency you would need to
break these deposits attracting penalties from the bank generally losing an
amount of the interest earned.
So these are various simple ways to make some good use of the idle cash. Saving more and saving smartly never harms!
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