Deregulation of Savings Bank interest rates – Valid Period II


Deregulation of Savings Bank interest rates – Valid period II

This is in continuation of my Post dt.28/06/2010, regarding the possible complexities in the Deregulated Scenario of  Saving  Bank Interest Rates.

AP – Saving Bank Account Holder

XZ – Term Deposit Account Holder

I was on

–     Say on 01/07/2010 – the 15 Days Term Deposit Rate is 4.5% and the SB Interest rate is 4%. On 10/07/2010 the SB Interest Rate is revised from 4% to 5%. What will be the reactions at various levels?

a)  XZ walks into the branch and requests for cancellation of the TD of 15 days and transfer the funds to the SB account, as the SB interest rate has gone up from 4% to 5% as compared to the TD Interest Rate of 4.5%

–  Will XZ be charged penal interest for pre-mature closure of the Term Deposit

OR

–          Will XZ be not charged penal interest   for pre-mature closure of the Term Deposit, as he is moving the funds to his Saving Bank Account only?

What could be the reactions of customers, who are not aware of the movement of the SB interest rate?

If the TD rates go up and for the corresponding period, the SB rates come down, there will not be a major problem. Customers might choose to move their funds from SB into Term Deposits that is all.

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