Smaller banks want to grow and for that they need your money
There are dozens of banks but choosing one that is right for you can be difficult. Consider this: putting your savings in a small bank can be more profitable than parking your money in a big bank.
If you look beyond the five big banks in Pakistan, there are many others that are hungry for deposits, which come from your salaries and savings. These banks want to grow and for that they need your money. This is why they offer higher profit rates than the big five, which already have huge piles of cash.
This simply means that the smaller the bank, the higher the chances of getting a better interest rate. For example, Soneri Bank is giving 8% monthly profit on a term deposit account that has a duration of six months. For a similar account, ABL is offering 6.5% in monthly profit.
Since most banks publish their rates on their website, you can find which one offers the best and on what terms. But each bank will have some conditions and offer some benefits. Soneri Bank requires you to maintain a Rs25,000 minimum balance for the term of your plan. ABL will ask you to have at least Rs10,000 in your account during the term.
Generally, there will be conditions like a floor on your investment amount or a minimum balance and restrictions on withdrawals. The rates will also depend on your plan, which could be for six months, a year or even three years. But the longer the term, the higher the interest rate.
If small banks offer higher rates, why does everyone not put their savings in them? Good question. This is because it comes with a risk. Remember KASB Bank’s default?
People usually fear that a small bank may default and they will lose their money. Is the risk worth taking? Perhaps, yes, because banks don’t default too often in Pakistan. Secondly, every bank is backed by the State Bank of Pakistan’s guarantee, so your money is not going anywhere even if your bank defaults. The only problem you will face is the money will get stuck till all legal formalities are taken care of in such a scenario.
But why put your money in a bank at all? Because the interest rates are at a five-year high and the market expects the central bank to raise it even further. This makes it a risk-free investment with a decent return at least in the next year or so.