A savings account is one of the most fundamental financial products offered by banks to customers. A savings account helps deposit money safely, and the bank secures the invested money with utmost care. Furthermore, banks provide interest on the investment, which is beneficial for customers.
Savings accounts are considered a liquid investment as they allow customers to withdraw money any number of times as and when the requirement arises. Nowadays, having a savings account is even more beneficial owing to financial schemes that encourage people, especially those in rural areas, to have their own personal savings accounts.
Digitalization has made our lives easier, and we can easily manage and track our expenses and income online, and pay our utility bills and do much more on the go. As we are all aware, the banking sector comes up with new financial products frequently, such as gold loans, IPOs, insurance schemes, retirement plans, education loans, and much more.
After understanding the importance of having a savings account, let us understand the interest on these accounts in India. Let’s also take a look at how to calculate this rate of interest.
The best Online Savings Accounts with high-Interest Rates for 2023 in India are discussed below:
- Young Stars Savings Account: The bank’s interest rate is between 3% – 3. 50%, and the minimum balance must be in the account is Rs 2, 500.
- Smart Stars Savings Account: The interest rate is 3% – 3.50% and should maintain a minimum balance of Rs 2,500.
- Women’s Aura Savings Account: The interest rate is 3% – 3.50% and should hold a minimum balance of Rs 10,000- Rs 2,00,000.
- Women Savings Account: The interest rate is 3% – 3.50% and should maintain a minimum balance of Rs 10,000
- Insta Save Account: The Interest Rate is 3% – 3.50% and should hold a minimum balance of Rs 10 000.
- Savings Family Account: The interest rate is 3% – 3.50%, and not mandatory to maintain a minimum balance.
- Basic Savings Account: The interest rate is 3% – 3.50%, and there is no requirement to maintain a minimum balance.
- Bank@Campus Savings Account: The interest rate is 3% – 3.50%, with no need to maintain a minimum balance in the account.
- Seniors Club Savings Account: The interest rate is between 3% – 3. 50%. The customer must maintain a minimum balance of Rs 4,200 – Rs 1,25 000.
- Retire Happy Savings Account: The interest rate is 3% – 3.50% and the account holder should maintain a minimum balance of Rs 25,000.
- Defence Salary Account: The interest rate is 3% – 3.50% and the account holder has to maintain a minimum balance rule.
- Regular Savings Account: The interest rate is 3% – 3.50% and should hold a minimum balance of Rs 2,500 – Rs 10 000.
- Silver Savings Account: The interest rate is 3% – 3.50% and the account holder should maintain a minimum balance of Rs 25,000.
- Easy Receive Savings Account: The interest rate is 3% – 3.50% and the account holder must maintain a minimum balance of Rs 5,000 – Rs 10,000.
How is a savings account interest rate calculated?
Savings accounts have no restrictions on terms or maturity periods. Therefore, as long as the time period you deposit the money in the account, you will fetch high returns. However, some private/public banks also insist that customers maintain a minimum balance. As discussed earlier, private and public bank interest on savings accounts provide interest rates ranging between 3% and 3.50%.
According to RBI regulations, the interest rate on savings accounts is based on the closing balance. The bank interest on savings accounts will be credited to the savings account, and the interest earned by the savings quarterly, semi-annual or annually will be credited. This is based on the customer’s choice of when they need the interest. This encourages people to save more money for the future.
Now let us understand the calculation of savings interest rate.
For instance, the amount saved in a savings account is Rs 3 lakh, and the interest rate is 4 % per year. Then the computation will be:
Interest on a monthly basis = Daily Balance * (Number of days) * Interest / (Days in the year)
3 Lakhs * 30* (4/100/365) = Rs 986/ month interest
How to calculate taxes on the interest on Savings accounts?
The amount of income you receive from a savings account is treated as “Income from other sources”. Section 194A of the IT Act states that TDS is not chargeable on a savings account. The interest earned on this type of savings account exceeds more than Rs 10,000. It is taxed at the account holder’s marginal tax rate.
The interest earned up to Rs 10000 is exempted from the income tax.
Alternatives to Bank Savings Accounts with Higher Returns
Investors are usually of the mindset that money in savings accounts is more secure than other investment avenues. The interest rate from savings accounts is comparatively lower than other investment options, but the risk factor is also low, which cannot be stated enough.
For those seeking higher returns and are ok with higher risk, several investment avenues such as ultra short-term funds, liquid funds, certificate of deposit, fixed deposits, recurring deposits in the post office, shares, IPOs and treasury bills, among others.
Bottom line
Saving money is imperative for handling uncertain and unnecessary expenses. Experts always tell people to develop a habit of saving money for emergency purposes, at least to cover six-month to one-year expenses. This is why saving money or investing in various avenues is always a good way to earn better returns.