A savings account is one of the most common deposit accounts held at banks and other financial institutions. It is often the go-to account for most people—and their first experience with banking. Chances are, your first bank account would have been a savings account. The search for the best savings account in India is also not uncommon, as they provide high liquidity and immediate access to funds. While there are several other rewarding savings and investment instruments in India, like an employee provident fund (EPF), fixed deposits, etc., savings accounts are essential for every individual.
Also read: EPF Interest Rate
In this article, we will explore the most prominent features of savings accounts, how you can benefit from savings interest rates, and what are some of the best savings accounts in India.
What are savings accounts
Savings accounts are reliable bank deposits that earn moderate returns over time. The key aspect of a savings account is its flexibility and liquidity. You have easy access to your funds with little to no restrictions on deposits and withdrawals.
Key features
The prominent features of savings accounts are:
- Modest interest rates - Savings interest rates can range from as low as 2% to a decent figure of 7%. Higher interest rates are usually offered to senior citizens
- High liquidity - You, as the customer, can withdraw, transfer, or deposit money as many times as you want to, giving you freedom over your finances.
- Security - Your deposits remain safe and secure.
- Efficient management - Your savings account can be managed through mobile banking, net banking, or through the bank’s portals. Additionally, savings account customers can benefit from Unified Payment Interface (UPI) payments and obtain a debit card for the account for easy access.
- Discounts and reward programs - Reward programs are sometimes bundled with debit cards and savings deposits for enhanced benefits.
Savings interest rates
Now that we have understood the core features of a savings account, let us understand how banks and financial institutions can offer interest rates of up to 7% to their customers, creating a win-win situation. For this, we will first address how banks generate income from your savings.
Suppose you have Rs. 10,000. You decide to open a savings account at a trustworthy institution and safely park your money there. The interest rate offered on the account is 6.5% per annum. This means you can expect your principal amount in the account to go up at least by Rs. 650 in 12 months, assuming you have maintained the funds at the same level.
Also read: How is fixed deposit interest calculated
What do you think the bank does with your money? How does it pay you and profit from holding your deposit without you making any effort?
The answer is quite simple. Banks use this money to extend loans to borrowers in the market. The Rs. 10,000 you deposited in your account will be used to provide loans at an interest rate higher than what is offered to you against your savings account. If you get an interest of 6.5% p.a., the bank can offer loans against an interest rate of 9%. The difference is kept by the bank as their profit. An important point to note is that the interest income earned on the savings account balance also falls under taxable income.
Types of savings accounts
Different types of savings accounts are designed to provide specialised facilities to varied customers. For instance, the main features that would attract a college student towards a savings account would differ from the needs of a retiree.
Let us explore the different types of savings accounts:
- Normal savings accounts - As the name suggests, this is a normal account that offers standard features. With low savings interest rates, these are starter savings accounts you can open with minimal documentation. All you need to do is complete the Know Your Customer (KYC) process to open this account. Some accounts may also require the maintenance of a minimum balance.
- Zero balance savings accounts - The main selling point of these accounts is that there are no requirements for maintaining a minimum balance in your savings account.
- Savings accounts for senior citizens - These savings accounts are catered to senior citizens and offer higher savings interest rates than normal savings accounts. Moreover, banks assign a relationship manager to cater to the specific needs of the customer.
- Salary accounts - For a salaried individual, a salary account is a must. Typically, the company you work for will help you open an account as they have established, standardised processes. As the name suggests, the company uses the salary account to transfer monthly salaries to its employees. Some of the benefits of salary accounts include insurance cover and a zero balance facility.
Besides these accounts, there are several other types of savings accounts with varied savings interest rates. With some research, you can easily find relevant options to suit your needs, with banks offering savings interest rates as high as 7% p.a. In addition to savings accounts, you can explore other avenues of investments like fixed deposits or the National Savings Certificate, a government-backed savings instrument.
If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.65% p.a.
Conclusion
Savings accounts remain a cornerstone of financial stability for people in India, offering several benefits like high liquidity, security, and decent interest rates. Particularly noteworthy is the fact that many banks provide savings interest rates of up to 7%, presenting a lucrative opportunity for savers. By understanding the features and types of savings accounts available, you can tailor your financial strategies to maximise returns and take bold steps towards your financial goals.
Whether opting for a regular savings account, a zero balance account, or one tailored for senior citizens or salaried individuals, there are diverse options to suit every need. Therefore, making an informed decision regarding savings and investments is crucial, and you can empower yourself by exploring and understanding the variety of options available to you.
