Daybreak - The best savings product your bank offers is the one it advertises less

Episode Date: August 30, 2026

At least 44% of Indians have their money sitting in savings accounts, including Tamil Nadu CM, the actor Vijay. These accounts earn only about a fraction of what a fixed deposit pays. But even though FDs earn more, the payoff is that you have to lock away your money for longer, and pay a penalty if you break the account prematurely.But did you know there's a product built to solve this exactly? It's called a Flexi-FD, and it promises FD-level returns with the liquidity that comes with savings accounts. Most banks offer it. And yet, not a lot of people have heard of it.The Ken's Inderpal Singh gets into why banks aren't exactly rushing to popularise a product that's supposedly a win for depositors, and what "flexible" doesn't always mean in practice.

When I first started saving regularly, the two options I was stuck between were fixed deposits and a savings account. Should I keep my money in a savings account so that I could access it whenever I needed? Or should I go for an FD so that it actually earns a decent interest? But what if I didn't have to choose at all? You see, the RBI reports that at least 44% of Indians currently have their money sitting in savings accounts. In fact, as my colleague Indarpal Singh writes, Tamil Nadu's new chief minister, actor Vijay, is one of them. He has about 200 crore rupees just sitting in a savings account. And each of those accounts, including Vijay's, earns barely 2 to 3% a year.

FTs, on the other hand, pay double or even triple that rate. But the moment you need to break that account early, you have to pay a penalty for it. Turns out, there is actually a savings product with banks that's kind of a happy marriage between a savings account and an FD. And the surprising thing is, it's not even a new product. But still, not a lot of people have heard of it. To answer why, I'm going to be reading Indarpal's edition from one of the Ken's most popular subscriber-only newsletter called Kaching. And it's titled, The Best Savings Product Your Banks Offer is the one it advertises less. Welcome to Daybreak, a business podcast from The Ken.

I'm your host, Richard Rikis, and every day of the week, my co-host, Nikka Sharma and I will bring you one news story that is worth understanding and worth your time. Today is Monday, the 31st of August. In May this year, when C. Joseph Vijay became the Chief Minister of Tamil Nadu, what left people gaping was not the unusualness of a movie star ascending to the state's highest office, but rather his wealth management choices. He declared total assets of 624 crore rupees to the Election Commission in March, with about 330 crore rupees of it held in bank deposits alone.

In fact, more than 200 crore rupees sat in a single savings account at the Indian overseas bank's Salig Ramam branch in Chennai. While Vigra might share very little with the common Indian, few of us are actors and far fewer are chief ministers, his money habits aren't too different from the rest of the country. Well, at least 44% of Indians. Nearly half of all individual bank deposits as of March 226 currently sit in savings accounts, according to data from the Reserve Bank of India. 54% lie in term deposits, such as fixed deposit or FTs and about 1% in current accounts.

Now, money management is always a tug-of-war between greater liquidity and higher interest rates. Term deposits pull the rope towards better interest rates. rates but come with a penalty when money is withdrawn prematurely. On the other hand, a savings account has no closures or penalties but offers embarrassingly low interest rates. A term deposit attracts an interest of 6 to 8% while a savings account will only accrue 2 to 3% and current accounts generate nothing. But sitting in the middle is a less known option that brings together the best of both worlds.

a Flexi FD or a sweep-in FD, as it is sometimes known. It's a type of bank account where cash deposited above a set minimum threshold is automatically transferred to an FD, which earns significantly higher interest rates that are on par with regular term deposits. The flexi part of the deal comes from the option to withdraw any amount any time without breaking the full FD or suffering a penalty. For instance, if the minimum threshold limit for an account, is rupees 50,000, any amount about that, as laid out by the bank, will automatically be swept

into an FD. And when an amount is withdrawn, say 25,000, the amount is broken from the FlexiFT, while the minimum threshold is maintained. But when I asked around, many people had not heard of FlexiFTs, let alone opened one. If you're wondering why, the short answer is simple. Your bank doesn't want it to be too popular. And the long-upy-revelled. answer is well, complex. A bag of the envelope calculation of CM Vijay savings if it were installed in a flex EFD shows impressive results. Indian Overseas Bank pays about 2.25% per annum interest on savings deposits above rupees 1 lakh. On a 200 plus crore balance, over 5 years compounded quarterly, that earns a little over 25 crore rupees. It's decent until you see the alternative. The bank,

pays an interest of 6.5% for a one-year FD. The same amount deposited in a flexi FD at that rate, compounds quarterly over the same tenure yields 81 crore rupees. The difference is nearly 56 crore rupees over five years, or roughly over 10 crore rupees a year. Now, Vijay of course, is an extreme case, rich even by the standards of a politician. If you have a comparatively modest 1 lakh rupees sitting in your savings account,

over five years, you would earn about 13,000 rupees in interest at a savings rate of 2.5% per annum. Move it to a flexi FD that keeps about 50,000 rupees as a liquid minimum balance, earning interest at 2.5% and sweeps the remaining 50,000 rupees into a fixed deposits at 6.5%, compounded quarterly and you walk away with about 25,000. in total interest. That's nearly double what plain savings would earn. And the difference is close to $12,000 just for keeping your money as liquid as before. And surprise, surprise, banks don't like that.

For all the money, they spend advertising credit cards and home loans. Flexi FTs don't seem to impress marketing teams as much. A credit manager at a leading private sector bank told me that there is an order in which banks like your money. Current accounts first, savings account second, term deposits third. Flexi FTs come last. A flexi FD which combines the stickiness of a savings account with the interest rate of an FD is all paying no gain for a bank's net interest margin.

So making the product too popular is not in the bank's best interest, if you will forgive the pun. Then why do banks still keep offering them? An investment advisor said that in one way, it is another carrot to keep a customer within the bank's ecosystem instead of letting them choose other investment instruments. In another, it is also a reputational thing. In some cases, flexi-fD facilities are reserved for premium account holders. They are also a great way for banks to manage idle cash and retain conservative savers.

There are things in this world which are popular with. zero marketing. For instance, bad investment advice from relatives. So why aren't flexi FTs? Turns out, they are sometimes not as flexi as they sound. Let's take one lakh rupees as an example again, and assume it has been deposited in a flexi FD scheme which keeps about 25,000 rupees as the minimum deposit and sweeps in the remaining 75,000 rupees into a flexi FD. Now suppose 30,000 rupees is withdrawn. Keeping the 25,000 threshold balance intact, the bank breaks the FD to recover 30,000, which means the FD now stands at 45,000 rupees. The complication arrives when you deposit money back into the account. A wealth manager from another private bank told me that

at most private banks, that surplus does not automatically flow back into the FD. You have to set up the sweep again manually. Most private banks add that extra step. putting the initiative burden back on the customer. But in some banks, the auto sweep facility does kick in automatically. When an amount is finally deposited, it's created as a fresh special term deposit receipt. Or, in other words, any new deposit lands as a new FD. Say you deposit 30,000 rupees back into your account. After the sweep, the account will now show two separate FTs.

one for 45,000 from before and another for 30,000 rupees. They both carry different maturity dates and different interest accrual periods. So, every subsequent transaction that disturbs the threshold spawns another FD, and Rose keep on adding. The order in which deposits get broken is also a factor in how much interest is actually owned. A last in first out method breaks the newest, shortest held FD first, which is gentler on the accrued interest. First and first out, or FIFO, does the opposite,

where if the customer actually uses the liquidity, the oldest FDs break first, preventing them from accruing higher interest over longer periods, though the latter is rare. Then there is some mis-selling problem. The credit manager at the private bank told the ken that branch managers, under pressure to meet FD targets, sometimes steer a customer seeking a flexi-fd facility toward a regular FD instead. A customer not understanding the difference may walk out having signed up for something less flexible.

Another barrier is sweet thresholds, that is, the minimum balance an account must maintain. Banks have little incentive to keep this low. Last year, SPI raised its threshold to 50,000 rupees from 35,000. A higher threshold means more of your money sits in the same. savings account longer, earning less, exactly where the bank wants it. So, in the tug-of-war between liquidity and returns, the FlexiFD is the instrument that doesn't pick aside. The banks, however, do. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news

platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.