Understanding interest rate on savings account: A detailed guide

Posted on Monday, April 3rd, 2023 | By IndusInd Bank

Saving money is an essential aspect of financial stability, and savings accounts are one of the most popular ways to store your hard-earned cash. While savings accounts may seem like a simple and straightforward option, understanding the interest rates on them is crucial in ensuring that your money is working for you. In this blog post, we’ll explain what exactly a savings account is, what is the interest rate on savings account and how can you grow your money through the same.

What is a savings account?

A savings account is a type of bank account designed to help individuals save money and earn interest on their deposits. It is a simple and convenient way to store your money while earning a small return. Savings accounts are considered a safe and low-risk option for those who want to put their money away for future use or as an emergency fund. They typically have no or low fees and easy access to funds when needed. Overall, a savings account is a valuable financial tool for anyone looking to build wealth and achieve their financial goals.

What Are Interest Rates on Savings Accounts?

When you deposit money into a savings account, you earn interest on that money over time. Savings account interest rates refer to the percentage of your account balance that a bank or financial institution pays you for depositing your money with them. Interest rates are typically calculated and paid out either monthly or quarterly, and the amount you earn depends on the interest rate and the balance in your account.

How Do Interest Rates on Savings Accounts Work?

The interest rate on a savings account is the percentage that the bank or financial institution agrees to pay you for holding your money with them. For example, if the interest rate on a savings account is 2%, and you have Rs. 1,000 in the account, you’ll earn Rs. 20 in interest for the year. The interest is typically compounded, meaning that you earn interest on the interest that you’ve already earned. Let’s look at compounding of interest in detail.

What is compound interest on a savings account?

Compound interest on a savings account is a type of interest calculation where the interest earned is added to the principal amount, and the new total becomes the basis for calculating the interest for the next period. This means that you earn interest not only on your initial deposit but also on the accumulated interest.

Suppose you have Rs. 10,000 in a savings account that pays an annual interest rate of 5% compounded quarterly. After the first quarter, your account balance would be Rs. 10,125, which is the original Rs. 10,000 plus interest of Rs. 125. In the second quarter, the interest would be calculated on Rs. 10,125, not just the original Rs. 10,000. Therefore, the interest earned would be Rs. 127.03, which is slightly more than the interest earned in the first quarter because you are now earning interest on Rs. 10,125. This process repeats every quarter, and the interest earned keeps increasing due to the compounding effect.

Overall, compounding interest on a savings account can help your savings grow faster over time, as compared to simple interest, where interest is only calculated on the initial deposit amount.

How to grow your money using savings account interest rate?

Here are five easy steps you can take to maximize your earnings:

Choose a bank with a high interest rate – Although it may seem obvious, the bank you select and the interest rate they offer will have a significant impact on the amount of interest income you earn. IndusInd Bank Savings Accounts is a great option, as they offer competitive interest rates on industry-leading savings accounts.

Maintain an optimal balance – Since your interest is calculated based on your daily closing balance in your savings account, it’s important to keep your balance high. Instead of letting your money sit idle, invest it in your savings account to increase the base of your interest rate calculation.

Choose a savings account that aligns with your goals – When selecting a savings account, interest rate should not be your only consideration. It’s important to choose an account that aligns with your financial goals in the long term. For example, if you’re a senior citizen, consider investing in Indus Senior Citizen Savings Account which offers doorstep banking, minimal paperwork, and a variety of other benefits.

Consider an FD-linked savings account – To earn higher interest earnings, select a savings account that provides dual benefits. Indus Multiplier Max- FD linked Savings Account automatically converts any excess balance above a certain threshold limit in your savings account into fixed deposits. For example, any balance over Rs. 20,000 may be converted into FDs in multiples of Rs. 1,000, giving you double delights.

Take advantage of tax deductions on interest income – To encourage savings and investment, the IT Department offers tax deductions that you can claim to reduce your tax outgo and increase the amount of money you have available. These deductions can be claimed under Section 80TTA. Check out this link to learn more about the tax benefits of savings account interest income.

Choosing the right savings account

Trying to figure out which savings account is the best fit for you? Look for an account that meets your specific needs and goals while offering convenient access to your funds.

IndusInd Bank offers a variety of savings accounts that are tailored to meet your unique savings requirements. For example, the Indus Young Saver account is perfect for saving for your child’s future, while the Indus Diva Savings Account caters to the banking needs of modern women. These accounts come with competitive interest rates, rewards programs, cashbacks, discounts, and many other benefits.

With a range of options for cash withdrawals, including ATMs, online transactions, and payment via cheque and debit card, accessing your funds has never been easier. Choose IndusInd Bank for a savings account that truly fits your lifestyle and financial goals.

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.