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Know more about CBI: Cash Bank Interest

 

In an earlier blog, Brajesh Sharma advised his friend, Rajesh Sharma to save himself from the low CBI trap (Cash Bank Interest). Brajesh Sharma informed him about how he was actually losing an opportunity in money matters by letting money idly lie in his savings bank account. We got a lot of enquiries on ways of dealing with low CBI and hence decided to write a blog exclusively on the topic.

What is CBI?

CBI is the interest that a bank pays us on money in our accounts. Individuals have a savings account while entities open current accounts. Typically, private banks such as Yes Bank, Kotak Bank offer 6-7% on the savings account deposits. The rate is slightly higher than the interest offered by public sector banks. PSU banks like Syndicate Bank, State Bank of India, Central Bank, Punjab National Bank etc offer about 4% interest on savings account deposits. Here is a brief chat between Rajesh Sharma and Brajesh Sharma on the benefits of private banks versus those of public banks.

How not to fall in CBI trap?

After his chat with Brajesh Sharma, Rajesh Sharma realized in money matters financial services dealing with CBI was critical to ensure that your money worked as hard as you did. Here are some of his learnings:

1. Don’t let cash lie idle at home

As Rajesh Sharma learnt, idle money is the easiest way to fall into the CBI trap. During demonetization in 2016, a lot of money was deposited by homemakers who had saved from their household allowances. While savings is a good habit, the measure will be more effective if you start earning from such money matters. Idle cash does not earn you any interest. It is always better to invest in financial offerings such as mutual funds, systematic investment plans (SIPs) and fixed deposits. In fact, SIPs and investments in mutual funds in leading financial services companies run by TATA Group, Birla Group, Reliance ADAG Group etc can be made for as low as INR 500/- per month.

2. Evaluate other investment options

Even though private banks offer a higher CBI in savings account deposits, the returns are not high as investments in other schemes. Alternative investment avenues such as mutual funds, fixed deposits and SIPs can help you in earning more money matters financial services from CBI. Most banks and private financial services providers offer various options for better planning your money matters. Such investments can also be used for planning life events such as buying a home, marriage, retirement, education etc. For the sake of convenience, you can link your accounts with such money matters.

3. Auto-debit your extra funds to investment avenues

Large organizations have a treasury function that ensures that no liquid cash is idle in the company’s bank accounts. Individuals and SME owners should take a cue from this function and save their liquid savings from CBI. In fact, banks offer the option to auto-debit our extra funds into investment avenues. Depending on your lifestyle and regular expenses, you have to decide the amount of liquidity you want to maintain in your account. Any money matters beyond that will be automatically directed to either a fixed deposit or a mutual fund or a SIP of your choice. In case of emergencies, when you are short of funds, no money gets debited. This is an ideal way to ensure that your additional funds continue to earn you an income.

Besides the above tips, you will also find our blog on “5 lesser known thumb rules of money” a useful read. By escaping the CBI trap, Rajesh Sharma gained better control over money matters. You too can by following the above simple steps.

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