Savings Interest Rates of the Best Indian Banks
One of the best ways to manage your daily expenditures and save money for the future is to open a savings bank account. But with so many options and different banks to choose from, how do you know which savings bank account will be right for you?
In this guide, we will discuss the savings account interest rates of various banks, how banks calculate savings account interest rates, and some essentials to know surrounding the best savings account.
What Is a Savings Bank Account?
In a nutshell, a savings account is the most common form of bank account that allows clients to earn interest on the amount maintained in their accounts. Most people are aware of savings bank accounts, which offer a risk-free way to store money for future needs. They're fast, easy to use, and convenient.
Customers can put money into a savings account and remove it as required while still earning interest. People deposit money in savings accounts with liquid cash, where they may add and deduct funds at any moment.
The Savings Account Interest Rates range anywhere from 2%-7% and more, depending on the amount deposited. Banks today provide savings bank accounts with several benefits and varying savings interest rates to meet your financial goals.
The Importance of Opening a Savings Account Bank
Saving money does not have to be difficult! It is achievable with a savings bank account, which may be conveniently opened. The savings account offers interest and is a secure option to store your hard-earned money. Once every three months, banks compute the savings account interest rates and then proceed to credit the account accordingly. Today, depending on the requirements of the individual, several savings account types can be used for various objectives.
The importance of having a savings account can be understood through the following points:
- Security: Saving in a bank account allows you to keep your cash safe in a secure bank rather than elsewhere, where it might be stolen, tampered with, or destroyed.
- Saving for a child's future: Savings accounts are an excellent way to accumulate wealth to fund a large expenditure in the future, like a child's education.
- Saving for retirement: Savings accounts provide a secure place to accumulate funds to take care of you post-retirement.
- Saving for a special event: Having funds in a savings account will further allow you to plan and budget for celebrations, weddings and more.
- Saving for bigger investments: Savings accounts are a useful way to put money aside for goals and other expenses to achieve them, like buying a house.
How to Open a Savings Account?
A savings bank account can be opened quickly and without much hassle. The process is even more simplified with the advent of technology. Today, because people may now open a savings account online, you won't even require to go to the bank branch in person. The entire process can be done from the comfort of your home.
Follow the steps mentioned below to open a savings account and earn better interest on our hard-earned money:
- Visit the desired bank's official website to open an account by filling in and submitting all the required details.
- Alternatively, download the bank opening application form from the website, print them out and fill them out.
- Finally, submit to the bank to get registered.
- Depending on your chosen bank, your savings account may be activated immediately or take up to 5 days to process.
How Does a Bank Credit the Savings Accounts With Interest?
The bank earns enough to credit savings accounts with accumulated interest in multiple ways. Let's discuss the two most common ways.
Spread is the difference between the interest collected on loans and the interest paid on deposits. The entire process is quite simple:
- The bank keeps the savings account funds and lends them to clients who take out loans from the same bank.
- The bank then imposes higher loan interest rates ranging from 8 to 12%.
- The bank can boost its profit margins by paying less interest on deposits and charging more interest on loans.
This is how the bank produces money so that it can pay interest on savings accounts for consumers.
2. Services Offered
The other method which allows banks to profit enough and provide satisfactory interest rates can be understood through the points detailed below:
- Customers may employ deposits, RBI loans, or money market borrowing as collateral. Even while term deposit interest rates and the repo rate are frequently comparable, call money rates are higher.
- Banks, on the other hand, accept savings bank deposits at competitive interest rates ranging from 3.5 to 4%.
- As a result, to attract more customers, banks provide services such as keeping a savings and current account, issuing checks and chequebooks, and paying depositors interest. And the interest is repaid through repeated purchases of the additional services offered.
These are the two most common ways banks can earn money to pay interest on savings accounts.
How Do Banks Calculate Savings Account Interest Rates?
Previously, many banks would calculate savings account interest based on the account's lowest amount from the 10th day of the month until the end of the month. The usual savings account interest rate was around 4% per year.
Suppose Mr. Raj has a savings bank account with a balance of INR 50,000 as of December 10, and he withdrew INR 25,000 on December 28.
In this case, the bank will only include Rs. 25,000 for calculating interest. This technique created significant uncertainty for bank clients and was abandoned by the central bank after implementing a new policy.
RBI released a statement in 2010 stating that the payment of interest on savings bank accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010.
According to the most recent RBI regulations, every rupee a client has in their account produces interest; thus, they do not need to plan for withdrawal intervals to reap the most benefits.
Take the following examples, for instance:
Mr. Raj's savings account has a balance of Rs. 50,000 as of August 1. He earned Rs. 1,000,000 from his mutual fund balance returns, which were due to mature on August 15.
On August 25, his savings account balance dropped to Rs. 50,000 after he withdrew Rs. 1,000,000 for his father's medical expenses. Mr. Raj will now earn daily product interest on his savings account balance.
Banks will calculate his interest as follows:
- Mr. Raj will receive interest on Rs. 50,000 for 14 days, beginning August 1 and ending August 14.
- The banks will calculate interest on Rs. 1,50,000 for 10 days, from the 15th to the 25th.
- The bank will calculate interest for the final seven days on Rs. 1,50,000.
The bank will credit his account with interest on the last business day of March, June, September, and December because interest is paid quarterly.
The Formula for Calculating Savings Account Monthly Interest
To calculate the Savings Account Interest Rates, this simple formula can be applied:
Saving Account Monthly Interest = Daily Balance x (Number of days) x Interest / Days in the year.
Top Savings Account Interest Rates In 2022
While interest rates remain largely similar among all major banks in India, they do vary according to the amount deposited. So you can make the best-informed decision, here are the Savings Account Interest Rates offered by the most prominent bank in India:
|Savings Account Banks||Savings Account Interest Rates (Per Annum)|
|AU Finance||3.50% - 7.00%|
|Axis Bank||3.00% - 3.50%|
|Bank of Baroda||2.75% - 3.35%|
|Bank of India||2.75% - 2.90%|
|Bandhan Bank||3.00% - 6.50%|
|Bank of Maharashtra||2.75%|
|Canara Bank||2.90% - 4.00%|
|Central Bank of India||2.90% - 3.00%|
|DBS Bank (Digibank)||3.25% - 5.00%|
|HDFC Bank||3.00% - 3.50%|
|HSBC Bank||2.00% - 2.50%|
|ICICI Bank||3.00% - 3.50%|
|IDBI Bank||3.00% - 3.50%|
|IDFC Bank||Up to 6.25%|
|India Post Payments Bank||2.00% - 2.25%|
|Indian Bank||2.75% - 2.90%|
|Indian Overseas Bank||2.75% - 5.00%|
|IndusInd Bank||4.00% - 6.00%|
|Jammu and Kashmir Bank||2.90%|
|Jana Small Finance Bank||4.50% - 6.50%|
|Karnataka Bank||2.75% - 4.50%|
|Kotak Bank||3.50% - 4.00%|
|Lakshmi Vilas Bank||3.25% - 5.00%|
|Punjab National Bank (PNB)||2.70% - 2.75%|
|Punjab & Sind Bank||2.80% - 5.00%|
|South Indian Bank||2.50% - 5.00%|
|State Bank of India (SBI)||2.70%|
|Union Bank of India||2.75% - 3.55%|
|Utkarsh Small Finance Bank||5.00% - 7.25%|
|YES BANK||4.00% - 5.50%|
It's important to note that banks will not withhold TDS on interest payments made on a savings account held by an individual or a HUF. TDS does not apply to savings account interest, although income tax is owed under the category of income from other sources.
Criteria For A Bank To Credit Interest To A Savings Account
The balance in the savings account must meet the minimum monthly or quarterly average balance criteria specified by the bank, which is disclosed to customers at the time of account opening to be eligible to earn interest.
If the customers did not maintain such a monthly or quarterly average balance, the bank can impose a penalty on a monthly or quarterly basis. In such a case, the associated savings accounts will be marked inactive by default. If the account holder has not made a transaction in the account for 24 consecutive months, subsequent debit or credit transactions will not be permitted in the normal course of business.
If the consumer desires to have their account reopened, they must request account activation and meet new KYC compliance criteria.
If these turbulent times have taught individuals anything, it should be the value of setting up a savings account. Maintaining numerous savings accounts and having money set aside in an emergency fund for unexpected expenses is always a good practice.
Three to six months' worth of spending is the usual amount to save in an emergency fund. People who use this saving approach avoid taking out loans or lines of credit. This can save you significant money that would otherwise be lost owing to interest. And thus, in a nutshell, this is why having not just a savings account but even several savings accounts is essential in one's lifetime.
While Savings Account interest rates provide several lucrative options, you might also want to consider investing your hard-earned money towards options that would yield higher returns. A few options worth considering include SIP (Systematic Investment Plan), debt mutual funds or the stock market. Debt mutual funds have a better return on investment than savings accounts and are much less volatile than equity stocks.
Are there any bank accounts requiring no minimum balance amount in India?
Yes! Various banks offer the facility of NIL minimum balance requirement, including the State Bank of India (SBI), South India Bank, Union Bank of India, etc.
What is the State Bank of India Insta Plus savings account?
The State Bank of India Insta Plus is a type of savings account that provides a host of services to customers. SBI Insta Plus savings account is a digital bank that can be opened instantly with the help of the YONO app. It provides a paperless process and 24/7 mobile banking facilities, among other benefits.
What is the TDS charged on the savings account interest?
TDS (Tax deducted at source) does not apply to the interest collected on the savings account, according to the provision. However, if the money gained in a savings bank account belonging to a person or a HUF exceeds a specific limit, the savings interest amount is taxed. For more info, please refer to Section 194A on TDS.
Are there any downsides to opening a second bank account in the same bank?
Having several bank accounts with the same bank provides numerous benefits for a person's financial goals. It aids in the management of various savings plans. As a result, it has nothing to do with credit, and opening a second bank account at the same bank will have no negative consequences.