Does the interest rate on a Savings Account vary?

While the interest on a savings account is determined based on the account’s daily closing balance, it is paid out on a quarterly or half-yearly basis, depending on the type of savings account.
  
Access to funds for paying off your dues. Not just this, you can also use a savings account to pay for your investments to create wealth for the future. You can earn interest on the balance in your savings account, which is credited to your account. A high-interest-yielding savings account is one of the best choices for investing money over time.

A high interest rate on a savings account helps maximise earnings on your deposited funds. Does an interest rate on a savings account change? Perhaps the savings interest rates you come across now may not be the same as when you opted for the online saving account opening earlier.  To learn more about this, read on!

What is the interest rate on a Savings  Account?
 

Typically, interest is the extra charge that is levied by the lender who you borrow the money from. When you put money in a savings account, your bank uses it to lend to others. In a way, the bank borrows the money in your savings account and pays you a share of the interest in return. The interest rate on a savings account ranges from 3% to 7%, depending on the savings account type and the bank with whom you open the account. 

What determines the interest rate of a Savings Account?
 

The savings interest rates are determined based on the value the banks place on getting additional deposits. Being a liquid account, a savings account offers safety and flexibility to the holders. Banks use these online accounts to encourage their customers to deposit more money by raising the interest rate. In this way, they have extra funds to lend. These interest rates can also be influenced by other types of returns on investments in the market.

Why does interest on a Savings Account change?
 

A high-yield savings account pays you higher interest, thus allowing your money to grow over time. Nonetheless, the savings interest rates change, and if you want to know how much you will actually earn on your money in the account, you need to look at the annual percentage yield (APY).

When choosing a high interest savings account, it is essential to consider the APY, for it determines the interest you will earn yearly. The annual percentage yield keeps fluctuating depending on the Reserve Bank of India’s interest rates and the economy.

The APY can change without notice, and hence the savings interest rates you may have signed up for are not guaranteed. It is linked with the central bank’s interest rate, which if lowered encourages people to borrow money and increase their spending capacity. People find personal loans, home loans, or business loans more affordable and use them, which helps stimulate the economy.

Reducing interest rates is not good for depositors because they will earn less on their savings deposits. Banks generally use the RBI interest rates as a benchmark for savings account yields. What you will get on your savings account balance is how you look at the APY. Since the APY depends on the savings interest rates and how often they compound, it can show how much you can earn in a year through the account’s interest.

To conclude, you need to know how the interest rate on a savings account works as well as focus on the APY offered by banks before opening a suitable savings account. There are many digital savings accounts that offer minimum balance requirements as well as the best savings account interest rates.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank 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 mentioned. Please consult your financial advisor before making any financial decision.