Digital wallet or dead money? The harsh truth about today’s savings accounts

Gone are the days when a savings account was seen as a dependable vehicle for building financial security. Today, for millions of Indians, it functions less like a traditional savings instrument and more like a digital wallet—a convenient tool for UPI payments, bill settlements, and everyday transactions. Interest rates? It is hardly a concern anymore.

There was a time when parking your money in a savings account was not just about safety—it was also about earning a decent return. But fast-forward to 2025, and that comforting notion seems to be eroding steadily. Over the past decade and a half, interest rates on savings accounts have quietly slipped, almost halving from where they once stood. This slow bleed in earnings has left everyday savers with one uncomfortable question: Is my money truly growing in the bank?

Consider this: back in 2011, savings accounts across major banks like the State Bank of India (SBI), Punjab National Bank (PNB), and HDFC Bank typically offered 4% per annum. Fast-forward to 2020, amid a pandemic-induced monetary easing cycle, these rates dipped—SBI trimmed its rate to 2.75%, PNB dropped to 3%, and HDFC followed suit with a fall to 3.25%. Fast-forward again to 2025, and the rates have shrunk even further: SBI and PNB now offer just 2.70%, while HDFC sits slightly higher at 2.75%.

To put this shift into perspective, let us understand this with an example. For instance, take the case of Rs 1 lakh held in an SBI savings account. In 2011, with a 4% interest rate, you would have earned Rs 4,000 annually. Today, that same deposit earns only Rs 2,700—a stark 32.5% drop in returns, even before accounting for inflation and taxes.

In an era where inflation often hovers around 5-6%, the value erosion becomes even more glaring. What was once a steady and reliable way to grow your money has now become a weak safety net. For the average Indian household that depends on this passive income, the falling savings rate is a serious setback.

This shift in mindset—from saving to spending—has made the erosion of interest rates feel almost invisible. Yet, while the money sits idle between transactions, its potential to earn is quietly slipping away. The savings account, once a symbol of prudent financial planning, has become a passive participant in the digital economy—offering minimal returns while inflation continues to nibble away at real value. Even for emergency fund savings, experts suggest you keep money in short-term FDs, liquid funds but not in savings accounts.

Adhil Shetty, CEO of BankBazaar, says, “As I’ve mentioned in my book The Bee, the Beetle and the Money Bug — with low risk comes low return. A savings bank account is a low-risk savings instrument that has never been popular for offering high interest rates.”

"Savings bank interest rates have been gradually coming down, as they are closely linked to the broader economic environment. When the Reserve Bank of India slashes the repo rate to support growth, banks respond by cutting lending rates. To maintain their profit margins, they also reduce deposit rates, including the interest on savings accounts," said Shetty.

The central bank recently reduced the key policy rate from 6.5% to 6%.

“Additionally, there is also a shift in how consumers save. More and more people are moving beyond traditional savings accounts to higher-yield products like fixed deposits, mutual funds, and other digital investment tools. This behavioural change is nudging banks to rethink how they price savings accounts,” added Shetty.

So, while the savings account remains important for day-to-day needs, it’s no longer where people should expect to earn real returns. They should explore alternatives that align better with their long-term goals, especially those that offer inflation-beating returns.

Better alternatives available

While a savings bank account may be necessary for everyday transactions and emergency funds, it is not the best place to grow your money. With interest rates on savings accounts often hovering between 2.5% to 4%, most people are losing value after accounting for inflation.

Shetty suggested, “For those looking to earn better returns, there are smarter alternatives depending on their goals and risk appetite. Fixed deposits, for instance, are low risk and currently offer higher interest rates—sometimes up to 7.5% or more for senior citizens. You can also ladder FDs to balance liquidity and returns.”

For long-term goals, mutual funds, especially through SIPs, are a good alternative. Equity mutual funds can offer inflation-beating returns over time, while debt funds can work for those with a more conservative risk profile.

“Even savings tools like sweep-in FDs or liquid mutual funds offer better returns while keeping funds relatively accessible. The key is to match your investment with your financial goal —whether it's safety, growth, or liquidity,” added Shetty.