Interest rate is the main driver of provider choice

Implications: 1. High interest savings deposits currently play a key role in financial institutions startegies. 2.Competition for deposit funds in India is fierce, and is expected to intensify as banks struggle with the effects of global credit crunch.

Analysis: The global credit crunch has increased cost of wholesale funding leading many banks to focus on growing deposit base and acquiring new deposit customers.And State Bank of India by raising interest rates on deposits was acknowledging the obvious,by bowing to the winds in the market. Had it not done so, the vaccum/indecision could have allowed competitors to blitzkreigh. 

The interest rate is the dominant driver behind customers' choice.Fees and interest rates are the determining factors for choice of a bank or financial institution.

The main factor that changed the playing field for savings account has been the rapid improvement in technology.The introduction of online banking in the last decade marked a major shift in the savings deposit market.Online banking made managing banking business even easier for consumers, as well as enabling new competitiors and new products to enter the market. Foreign banks previously hampered by their lack of branch coverage, can now compete with the major Indian Banks. As a result, they could start marketing other financial products in the Indian market as well.

Though there are many competing products in the high interest deposit area,a large majoirty of Indian savers especially the senior citizens prefer the security of banks to hold their life savings.

The last decade has witnessed a demographical change in the savers. High interest savings accountholders who arranged their main account online are more likely to be in a younger age bracket, high earners, financially savvy and read the financial news.

Going forward, amount of cash held in accounts payng zero or very low interest is expected to decrease significantly (excepting for business purposes) and average deposit rates will rise. And overall importance of deposit products for banks' strategy will increase. Back to old days. The more things change, more they remain the same.