On the loan interest income that is charged to a borrower, bank eats up 35%, income tax department 22%, inflation 42% and you get a measly 1.7% share (or 0.15% on the capital invested) Do Indian banks think that people give them money on charity?
Even mutual funds and venture capital funds do not charge a 20X ratio of mgmt. fee to investor returns ratio. Furthermore, the list of bank charges is are practically endless which further eats into your returns.
Premature withdrawal loss is almost a racket. The loss due to penalties, penal interest rate etc. would lead to returns, which are sometimes lower than the savings interest rate.
Banks are saddled by 6 lakh crore of NPA (as of June 2016). Your low returns on deposits are to recoup these losses and fund the bank’s expansion. I don’t deny that banks provide services, have branches, and handle cash which costs them dearly. Still the NIM (net interest margin) that the banks in India enjoy are highest in the world.
Already many people buy corporate/PSU bonds instead of FD for long term planning. The lower taxation & indexation benefits has led to a rise in FMP (fixed maturity plans) options available. Even for very short-term deposits, the returns provided by liquid funds outstrip those by banks.
In short, banks are flexible, convenient & simple way for saving, but the question is am I ready to pay this steep a price for it?