Bank Savings Versus Chit Funds – Which is the better option?

Bank Saving Vs moneyclub

Generally, bank deposits are the safest instruments to save your hard-earned money. Yes, you can have sporadic incidents of bank failure like the PMC Bank, etc. But, even then, the bank deposits are insured under DICGC up to a specific amount. Therefore, it shows that the governments over the years have cared for people by securing their hard-earned money.
India believes in a saving economy, and hence you have almost everyone in India having a bank savings account. Though the savings account interest rates are low at around 4% per annum, it is much higher than what highly advanced economies like the US give. In contrast to the savings account, bank FDs (Fixed Deposits) offer higher interest rates. Though these deposits are also payable on demand, they encourage people to save for longer terms.
Let us see some banks with the best savings interest rates in India.

Earn 3 To 4 Times Of What You Earn From Bank Fixed Deposits

Bank Savings Deposits

All banks in India, including the public sector, the private sector, the cooperative sector, the foreign banks, etc., offer savings accounts products to their customers, encouraging them to save money for more challenging times.
Usually, the savings rate offered by banks in India hovers around 3.5% to 4%. However, you have banks like Citi Bank offering 2.5%, and State Bank of India offering 2.75%. DCB Bank offers the best savings interest rate in India at 6.50%. RBL Bank savings interest rates are around 6%. Of course, the higher interest rates are for customers who maintain average quarterly balances of more than Rs 1 lakh.
Even the Post Office Savings Bank offers savings account facilities for Indians and provides an interest rate of 4% per annum.

Bank Fixed Deposits

Bank savings deposits are the most liquid because you can withdraw them at any time. At the same time, you can earmark some of your savings to a fixed deposit account that fetches a higher interest rate. Banks give comparatively higher interest rates on fixed deposits because the deposit remains with the bank for a specific period. However, banks allow you to withdraw your money prematurely.
Bank fixed deposits can be for short terms starting from seven days and extending long-term, even up to ten years. However, banks usually offer the highest interest rates for deposits between one and three years.
Prominent banks like State Bank of India and ICICI Bank Ltd offer around 5.40% to 5.50% as the maximum interest on time deposits. However, private banks like Yes Bank Ltd and IndusInd Bank Ltd offer 6.66% to 6.94%. Small finance banks like Utkarsh Small Finance Bank Ltd is the bank with highest interest rate at 7%, whereas Bajaj Finance FD fetches a maximum interest rate of 7.08%.
Senior citizens get additional benefits with banks paying a higher interest rate on their fixed deposits. For example, Bajaj Finance FD for senior citizens fetches a maximum interest of 7.45%, whereas PNB is the bank with the highest senior citizen interest rate at 6.95%. 
Post Office senior citizen FDs offer a high-interest rate of 7.30%, making it one of the better avenues for saving in India.

Is a Chit Fund better than bank savings?

Chit funds are among the oldest and most prevalent forms of saving money in India. Even today, you have millions of unregistered chit funds operating in India. A majority of them operate small-time amongst a homogenous group of people known to each other. While the unregistered chit funds present excellent savings options with high-interest returns, they are risky. 
So, you have the registered chit fund platform like Money Club, Shriram Chits, etc. These chit funds are safe because they follow a set of laid down chit funds rules and regulations. So, investing in these chit funds can get you excellent returns.
The question remains unanswered as to which among the chit fund and the bank savings is better. If you are looking for the guaranteed safety of your hard-earned money, the bank savings deposits are safe. However, if you expect better returns on your investments, the chit fund is a better option. But, it depends on which chit fund you trust your money with. Registered chit funds are always better options because they give good returns on your deposits. However, they do not offer the same liquidity and allied services that banks deliver. 

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Final Thoughts

The debate between bank savings and chit funds will always be there. Bank deposits are better for safety and liquidity, whereas chit funds score over bank deposits by offering better returns on investment.