All you need to know about a savings bank account

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Picture this. It is the end of the month. You’ve managed to comfortably pay off your recurring expenses, meet your family’s needs, and even take them for a weekend outing. Above all, you’ve succeeded in saving around Rs. 10,000 from your monthly income.

What do you do with this Rs. 10,000? Well, it may be tempting to splurge on something impulsive. But a smarter idea would be to save this money for the future. So, how do you save these funds effectively?

If you lock it away as hard cash in your safe deposit box, your money is simply going to sit idle. But there’s a better idea. You can deposit your savings in a savings bank account — and earn interest on those funds.

Sounds intriguing? Well, let’s decode everything you need to know about savings bank accounts.

What is a savings account?

A savings account is the most basic kind of bank account. You can use a savings bank account to deposit your money safely. Unlike term deposits, the money you have in your savings account can be withdrawn as and when you need it, without any penalty or charges. This makes a savings bank account very liquid and accessible.

Today, it is possible to open a savings bank account online, from the comfort of your home itself. You just need to follow the steps listed below to have your online savings account up and running in a few days, at most.

Visit the website of your preferred banking partner.
Head to the section pertaining to opening a savings bank account online.
Fill in the account opening form with your personal and professional details.
Along with the duly filled form, submit the required documents like identity, address and age proofs.
Complete the video KYC process, if applicable.
Get your user credentials and start banking.

How is the interest on the savings bank account balance calculated?

One of the characteristic features of a savings account is that you earn interest on the balance you maintain in your account. The rate of interest varies from one bank to another, and even within a given bank, there may be different types of savings accounts that carry different interest rates.

But the method of interest calculator remains the same across banks and bank accounts. Interest is calculated on a daily basis, and generally credited to your account every quarter. Many banks now even credit the interest each month, so you can earn and save more in the process.

The formula used to calculate interest on your savings account balance is as follows:

Interest on savings account= Daily balance x Rate of interest x (No. of days ÷ 365)

So, for instance, let’s say this is what your bank account balance looks like during the course of a given month.

Date	Opening balance	Deposits	Withdrawals	Closing balance
January 1	Rs. 1,00,000	-	-	Rs. 1,00,000
January 7	Rs. 1,00,000	-	Rs. 40,000	Rs. 60,000
January 20	Rs. 60,000	Rs. 50,000	-	Rs. 1,10,000
January 31	Rs. 1,10,000	-	-	Rs. 1,10,000

As you can see, the daily account balance keeps fluctuating on a regular basis. In this case, here is how the interest on the account balance will be calculated. We’ll assume an interest rate of 3% per annum.

Account balance	Number of days	Interest calculation @3% p.a	Interest
Rs. 1,00,000	6	1,00,000 x 3% x 6/365	Rs. 49.31
Rs. 60,000	13	60,000 x 3% x 13/365	Rs. 64.11
Rs. 1,10,000	12	1,10,000 x 3% x 12/365	Rs. 108.49
Total interest			Rs. 221.91

Key features of savings bank accounts

Apart from the interest calculation, there are some other key features of savings bank accounts that you should know about. Some of these features may not be applicable to certain types of savings accounts though, so make sure you read the terms and conditions of your bank account before you open it.

1. Interest rates

The rate of interest on your savings bank account may vary from around 2.5% per annum to around 7.5% per annum or higher. Most banks offer higher interest rates to senior citizens too. So, before you open your savings bank account, check the rate of interest the bank offers. This rate depends on the following factors —

Repo rate:

The repo rate is the rate at which banks borrow money from the Reserve Bank of India. If this rate increases, borrowing becomes costlier for banks. So, these commercial banks raise the savings banks interest rates to encourage more people to save, thereby ensuring that their minimum cash requirements are met. On the other hand, if the repo rates fall, the savings bank interest rates may reduce.

Liquidity:

Banks with a higher level of liquidity may offer higher rates of interest. This is because they have sufficient cash flow to pay out higher interest each month or each quarter.

Profitability:

Banks also take into account their own profit margin before deciding the interest rates on the savings account balances.

2 Minimum balance requirement

Banks generally require you to hold a minimum balance in your savings account. This minimum balance can range from Rs. 10,000 to Rs. 1,00,000 or higher. If you do not maintain the required balance, a penalty will be levied by the bank. That said, many banks also offer zero balance savings accounts, where you do not have to maintain a minimum balance at all.

3. Passbooks and cheque books

When you open a savings bank account, you will receive a passbook, which helps record your banking transactions, and a cheque book, which you can use to transfer money or make payments. These facilities may be optional in some banks.

4. Debit cards

You can also opt to receive a debit card linked to your savings bank account. This makes payments and cash withdrawals easier.

5. Fees and charges

Some savings bank accounts may come with additional fees and charges. For instance, you may be charged a nominal fee for withdrawing cash via other bank ATMs. Your debit card may also come with an annual fee.

Conclusion

This sums up the fundamentals of a savings bank account. All things considered, you can earn interest on your savings by depositing your money in a bank account rather than letting it sit idle at home. All you need to do is choose a bank account with terms and conditions that are convenient for you.

All you need to know about a savings bank account

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