How Savings Account Interest Rate Work
In a world where every rupee counts, your choice of savings account can make all the difference. Because it is not a place to just store your cash; it’s a cornerstone of financial stability and growth.
Therefore, understanding how savings account interest rates work is not just beneficial; it’s empowering. This knowledge will help you make well-informed decisions about where to put your hard-earned money.
So, are you ready to maximize the value of your savings while navigating the ever-evolving financial landscape? Let’s explore the best savings account interest rates available in 2024.
Interest Rates for Savings Account in Top Banks
Have a look at the savings account interest rates the top 20 banks. It will give you a comprehensive comparison that will help you make informed decisions.
S. No | Bank Name | Rate of Interest (% p.a.) |
1 | 3.00% (up to 1 Lakh) to 6.00% (1–10 lakh) | |
2 | 3.50% (up to 1 lakh) to 7.50% (more than 5 lakh) | |
3 | 3.25% (up to 1 lakh) to 7% (4-5 lakh) | |
4 | 3.00% (up to 50 lakhs) | |
5 | 4.25% (up to 1 lakh) to 7.50% | |
6 | 3.00% (up to 1 lakh) to 7% (5 lakh–50 crores) | |
7 | 2.75% (up to 50 lakhs) | |
8 | 3.50% (up to 1 lakh) to 5.00% (1-5 lakh) | |
9 | 3.00% (up to 1 lakh) to 7.25% (1–5 crores) | |
10 | 4.00% (up to 1 lakh) to 7.00% (above 10 lakhs) | |
11 | 3.50% (up to 1 lakh) to 6.75% (above 10 lakhs) | |
12 | 3.50% to 4% (ActivMoney feature gives 7% interest ) | |
13 | 2.90% (up to 50 lakhs) | |
14 | 3.00% (below 50 lakhs) to 3.50% | |
15 | 4.00% (up to 1 lakh) to 7.50% (5–50 lakhs) | |
16 | 3.00% (below 50 lakhs) to 3.50% | |
17 | 3.00% (up to 1 lakh) to 7.50% (above 10 lakhs) | |
18 | 2.00% (up to 1 lakh) to 2.90% (above 10 lakhs) | |
19 | 3.50% (up to 1 lakh) to 7.00% (above 5 lakhs) | |
20 | 3.50% (up to 1 lakh) to 7.50% (above 5 lakhs) |
The Ins and Outs of Savings Accounts
Savings accounts are the foundation of effective financial planning. They offer a safe place to keep your money while earning interest. These options are ideal for accumulating emergency funds, saving for large purchases, and planning for retirement. Here are some things to consider before opening a savings account:
- Opt for the highest interest-rate savings account. This approach will ensure that your money grows effectively over time.
- Some accounts require a minimum balance to be eligible for the advertised interest rate. Be sure to align this with your financial situation.
- Consider how you prefer to access your funds—whether through ATMs, UPIs, online banking, or mobile apps.
- Some accounts offer perks like overdraft protection or rewards programs. Assess these extras based on your individual needs.
How is the savings account interest calculated?
Do you understand how the interest on your savings account is calculated?
Well, it’s pretty simple, we will break it down! The RBI mandates banks to calculate interest on your savings account based on your daily closing balance.
The interest accumulated is credited to your account half-yearly or quarterly, depending on the bank’s policy. The formula used to calculate the interest is as follows:
Interest per month = Daily Balance × Rate of Interest × Number of Days / 365 × 100
Let’s understand the calculation of how banks compute this interest with an example:
Suppose this is your monthly statement for January 2024, and your bank offers a savings account interest rate of 3.5% annually.
Date | Opening Balance (₹) | Deposits | Withdrawal | Closing Balance |
01-Jan-2024 | 150,000 | – | – | 150,000 |
05-Jan-2024 | 150,000 | 50,000 | – | 200,000 |
15-Jan-2024 | 200,000 | – | 30,000 | 170,000 |
25-Jan-2024 | 170,000 | 20,000 | – | 190,000 |
31-Jan-2024 | 190,000 | – | – | 190,000 |
From January 1–5 (4 days)
Daily Closing Balance: ₹ 150,000
Interest = 150,000 × 3.5% × 4/365 × 100 = ₹ 19.18
Similarly, here are the interests for other periods:
From 05-15 Jan (10 days) = ₹ 191.78
From 15 to 25 Jan (6 days) = ₹ 34.52
From 25-31 Jan (6 days) = ₹ 36.71
Total Interest for January 2024 = 19.18 + 191.78 + 34.52 + 36.71 = ₹ 282.19
Understanding TDS on Savings Account Interest
Tax Deducted at Source (TDS) is how the government collects tax by deducting a part of your income at the source. In the context of savings accounts, banks don’t deduct TDS on the interest you earn.
Income earned from a savings account is considered “Income from Other Sources,” and you must declare it when filing your IT returns. Under Section 80TTA of the Income Tax Act, up to ₹10,000 interest in a year is exempt from tax. This limit for senior citizens is even higher, at ₹50,000 under Section 80TTB.
However, the extra amount you earn beyond these limits is your income and is subject to tax deduction. For instance, if you earn ₹15,000 as interest from your Savings Account, only ₹5,000 will be taxable after the ₹10,000 deduction under Section 80TTA.
Advantages of a Savings Account
A savings account is a secure financial product that grows your money. It can be valuable in achieving specific goals. Here’s why:
Grow Your Money with Interest
Choosing the highest interest-rate savings account allows you to park your funds and generate passive income through interest gains. And the best part? The interest is compounded, so you’re earning interest on your interest, further maximizing your wealth.
Access to Convenient Banking Features
Savings accounts offer unmatched convenience, with features like debit cards, online banking facilities, and access to ATMs. These aspects facilitate seamless transactions and easy financial management.
Your Money is Insured and Safe
Rest assured, your money is in safe hands with a savings account. The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance for principal and interest up to a maximum of ₹5 lakh. However, it’s important to note that the accrued interest is not insured if the principal amount exceeds five lakhs.
Ready Cash Whenever You Need
We all know that life can throw unexpected financial curveballs our way. Navigating these tough times can be challenging, but having a savings account can be a lifesaver. It offers high flexibility and liquidity, ensuring swift access to funds when needed.
Goal-Oriented Financial Planning
A savings account encourages a disciplined approach to achieving short-term financial goals. It curbs impulsive spending and nurtures sound saving habits, laying the foundation for a secure future.
More Savings, More Earnings
Some banks offer tiered interest rates, meaning the more you save, the higher your savings account interest rate will be. That’s a compelling incentive to bolster your savings and reap greater financial rewards.
Minimum Balance Requirements in Savings Account
Banks often mandate that customers maintain a minimum balance in their savings accounts. However, the amount can vary depending on the bank and the type of account. For example, HDFC Bank requires a minimum monthly balance of ₹10,000 for urban branches but ₹5,000 for semi-urban branches.
Hence, familiarizing yourself with your bank’s policies is necessary. If you fall below any of the set thresholds, it can lead to penalties. Here are some tips to keep in mind to avoid unnecessary charges:
- Pick an account that suits your financial habits. If your balance often changes, look for accounts with lower limits or ones that offer waivers in certain situations.
- Certain banks offer tiered interest rates based on account balances. Maintaining a higher balance may make you eligible for better interest rates.
- Consider a Basic Savings Bank Deposit Account (BSBDA) or a zero-balance account. Yet, there’s a maximum balance limit of ₹50,000, and BSBDA customers cannot hold any other savings account in the same bank.
Wrapping Up
With the ever-changing landscape of savings account interest rates, staying informed and proactive is crucial. By carefully considering the given options and making strategic decisions, you can watch your savings grow.
So, why wait? Put your money to work, and let those interest rates do the heavy lifting for you!
FAQs
1. What factors affect savings account interest rates?
Many factors influence savings account interest rates. It includes the central bank’s policy rates, inflation, and the bank’s liquidity needs.
2. Can I negotiate the interest rate with my bank?
Savings account interest rates are generally non-negotiable, but some banks offer promotional rates for a limited period.
3. Can I have multiple savings accounts to maximize my interest earnings?
Yes, having multiple savings accounts at different banks can help diversify your savings and take advantage of varying interest rates.
Team LenDenClub
LenDenClub is India’s largest alternate investment platform which started operations in India in 2015. We have been helping investors diversify their investments beyond traditional investment instruments ever since.
