One of the fundamental financial tools that every person needs is a savings account. Several banks around the country provide competitive interest rates on savings accounts. Daily calculations are used to determine the interest, which is periodically credited. A savings account is a type of account at a retail bank. You may transfer money, withdraw money, and save money with a savings account. You will also get interest on the money you have in your account. There aren’t many investment products on the market that provide both liquidity and interest. However, a savings account will enable you to both save some money and make money whenever you need it.
Features of savings accounts
- Interest rates range from 4% to 7% per year, depending on the daily balance.
- Helps achieve short-term financial objectives.
- Effortless withdrawals.
- Starting with a small amount of money.
You may easily achieve your short-term financial goals by making deposits into a savings account. You can pick a savings account from the variety of accounts that banks provide, including those designed specifically that fit your lifestyle and usage. The interest rate on a savings account is one of the most important factors to consider. Read on to learn more about savings account interest rates.
How are the interest rates on savings accounts determined?
According to the new RBI regulation, interest on savings accounts is computed daily depending on your closing balance. Depending on the kind of savings account and the bank’s policy, the interest will be credited to your account every six months or every three months.
The Reserve Bank of India, however, has suggested that the banks credit the interest on savings bank accounts on a quarterly basis since it would be more advantageous for the customers. The monthly interest on a general savings account is typically calculated using the method outlined below.
Monthly Interest = Daily Balance * (No. of days) * Interest / (days in the year)
Calculator for savings account interest rates
You may determine the interest that you will get from a savings account using a savings account interest rate calculator. You must enter details like the average balance and interest rate the bank is offering into a savings account interest rate calculator. Additionally, you may decide whether interest will be credited monthly, quarterly, half-yearly, or annually. The calculator will display the interest you will get based on your daily balance and the interest rate on your savings account.
Advantages of savings accounts
- You can be confident that your funds are safe when you place them in a savings account. The money can be obtained if there is a future financial necessity.
- Any moment is a good opportunity to access money that has been put in a savings account. You may easily withdraw money from your bank account or debit card in the event of an emergency.
- You may start investing with little money by opening a savings account. Simply create a savings account with the very minimum needed deposit, then start making deposits whenever you can.
- Banks will also grant you access to phone and online banking if you have a savings account, opening up a new world of speedy transactions. With internet banking, you may easily link credit card accounts to savings accounts, pay utility bills, perform check transactions, and transfer money via NEFT and IMPS.
- A few banks combine savings account features with personal insurance.
Savings accounts disadvantages
While savings accounts provide easy access and reliable safety, they do not pay as much as other savings instruments. In the long run, investing in stocks and bonds or certificates of deposit can earn you a higher return than investing in treasury bills. As a result, if used for long-term savings, savings accounts have an opportunity cost.
Savings account interest rates of top banks
| Name of the Bank | Savings account interest rates |
| Axis Bank Savings Account | up to 3.50% |
| Bandhan Bank Savings Account | up to 6.00% |
| HDFC Bank Savings Account | 3.50% |
| IndusInd Bank Savings Account | up to 5.00% |
| Kotak Mahindra Bank Savings Account | 3.50% |
| Lakshmi Vilas Bank Savings Account | 3.25% – 3.75% |
| RBL Bank Savings Account | 4.25% – 6.00% |
| Yes Bank Savings Account | up to 5.25% |
Savings account minimum balance requirements
The phrases minimum daily balance, minimum quarterly balance, and simply minimum balance are frequently used by banks. You may have to meet the Minimum Average Balance Requirements of a savings account.
The amount that must be kept in your savings account over a specific amount of time is referred to as the average balance. By adding together the daily balances and dividing them by the number of days in the specified period, the average balance is determined. The average daily balance in your account for that quarter should have been Rs. 3,000, for instance, if the average quarterly balance for a savings bank account is Rs. 3,000.
As an alternative, you might take Rs. 5,40,000 as the remaining amount for one day of that quarter. You will incur a non-maintenance penalty if you fail to maintain the required balance levels. Nowadays, almost all major Indian banks provide Basic Savings Bank Deposit Accounts (BSBDA), which are accounts with no balance. You will be charged a fee and may use your BSBDA account just like any other savings account.
How to calculate taxes on the interest on savings accounts?
The interest you earn from a savings account is called Income from Other Sources. It must be reported on your income tax return. As per Section 194 A of the IT Act, TDS is not taxable on savings accounts. Savings accounts earn interest that is taxed at the account holder’s marginal tax rate if it exceeds Rs. 10,000. An exemption is only available for interest income up to Rs.10,000, and the savings account must be held with a public or commercial bank or the Post Office.
