Why Keep Money in a Savings Account for 2–4% returns
You Can Earn 6–7% with Debt Funds
Most of us keep a decent chunk of our money in savings bank accounts for convenience and safety. While that’s understandable, have you ever stopped to ask: Is your money really working for you?
Savings accounts typically offer 2% to 4% annual interest. This rate hasn’t changed much, even with rising inflation and growing financial awareness. Meanwhile, debt mutual funds, a low-risk and flexible investment option, can offer 6% to 7% per annum—sometimes even higher. The question is: why leave your money idle in a bank account earning half the return, when you have a smarter alternative?
Those days are gone, when the investor use to keep his funds in savings’ banks account and got 6 to 7% yearly interest. Nowadays, the savings bank interest rates had gone down to 2.5 to 4% approx. in India. Why still keep huge funds in savings bank account with interest lower than the inflation in the country. Invest in debt funds for the same kind of safety and liquidity.
The Problem with Savings Bank Accounts
Savings accounts are great for day-to-day transactions, bill payments, and short-term cash needs. But for anything beyond that, they fall short.
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Low Returns: With most banks offering 2.5%–4%, your money barely beats inflation—if at all.
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Taxable Interest: The interest earned on your savings account is fully taxable as per your income slab, further eroding real returns.
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Idle Funds: People often leave large balances in savings accounts for “just in case” scenarios, but that money could be working harder elsewhere.
Start Debt Mutual Funds to beat inflation
Debt mutual funds invest in government securities, corporate bonds, and other fixed-income instruments. They aim to provide stable and predictable returns—without the rollercoaster ride of equity markets. Importantly, certain categories of debt funds (like liquid, ultra-short duration, and corporate bond funds) are designed to offer low risk and high liquidity, making them ideal substitutes for idle cash.
Here’s why they make sense:
1. Better Returns
Over the past few years, good-quality debt funds have consistently delivered 6% to 7% returns annually. That’s nearly double what you’d get from a regular savings account.
2. Flexibility & Liquidity
Many debt funds, especially liquid and overnight funds, offer redemption within 24 hours on business days. Some even offer instant redemption for amounts up to ₹50,000 per day. That’s almost as flexible as a bank account!
3. Low Risk
If you’re risk-averse, you can choose funds that invest only in AAA-rated securities or government bonds. These are among the safest instruments in the market.
4. Tax Efficiency
If you hold debt funds for more than three years, you benefit from indexation, which adjusts the cost of investment for inflation. This reduces the tax liability on long-term capital gains, often significantly lower than the tax on savings account interest.
5. Professional Management
Your money is managed by experienced fund managers who actively monitor the credit quality and interest rate environment—far better than letting cash sit idle in your bank.
Real-Life Example
Let’s say you keep ₹5 lakh in your savings account, earning 3% interest. That gives you ₹15,000 a year before tax.
If instead, you invest it in a high-quality debt fund earning 6.5%, that’s ₹32,500 per year. Over 5 years, that’s an extra ₹87,500—without taking much additional risk.
When to Still Use a Savings Account
Of course, savings accounts still have a role to play:
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For emergency cash that you might need instantly
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For managing monthly bills and transfers
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For short-term parking (a few days or less)
But anything beyond that? Consider moving it to a debt fund.
At the end,
In today’s world, where every rupee counts, it’s time to stop letting your money nap in a savings account. Debt mutual funds offer better returns, liquidity, safety, and tax advantages—all without locking your funds or exposing you to high volatility.
Think of it this way: if your money could earn 6–7% safely and flexibly, why settle for 2–4%?
Make your idle money work smarter. A small shift today can lead to big gains tomorrow.
