Read on to find out why high interest rate on your savings account is important.
Savings account is one of the basic financial requirements in today’s age. This is typically the first point of contact in the savings and investment world. Saving accounts have number of benefits. It is a safe avenue to park cash and you can use it for day to day transactions. Savings accounts also come with a host of other features such as online banking, sweep facility, locker facility, zero-balance account as well.
While savings account is more or less similar for all the banks, one of the key defining features of a savings account is the interest rate. Private sector banks offer higher interest rates than public sector banks depending on the different savings account.
Read: Top Banks that offer High Interest on Savings Accounts
With the interest rates moving south, the interest rate offered on traditional deposits have become lack luster. In some cases, the interest rate on savings account by private banks is at par with the interest rate offered on fixed deposits. A higher interest rate means more interest on your deposits. This means that your savings account is making more money.
Managing finances is more about emotions than numbers. We all have an intrinsic tendency to overspend which can result in the loss of capital appreciation. Saving is all about delayed gratification where savers save money and delay their purchases to a later date. This helps to build enough resources for future consumption. A higher interest rate may help to curb unnecessary expenditures as the money lying in your account will pay you interest.
Compounding is known as the 8th wonder of the world. With a higher interest rate on saving account, you end up receiving higher interest on your deposits. You can think of compounding as a snow ball. Once the snow ball rolls down a snow clad mountain, it starts to accumulate more and more snow. Similar is the case with compounding. Let us illustrate with the help of an example.
Let us assume that you have Rs.10,000 in your savings bank account which is giving you an interest rate of 4%. On the other hand, there is another savings bank account that fetches you 6% return. All you do is keep it for a year. At the end of the year, you would have earned Rs.200 more on your 6% savings interest account.
| Amount(Rs) | 10,000 | 10,000 |
| Rate | 4% | 6% |
| No. of years | 1 | 1 |
| Total amount(Rs) | Rs. 10,400.00 | Rs. 10,600.00 |
| Difference | Rs. 200.00 |
This is just a basic example. The figures will be higher if the amount saved is higher.
Many people keep a lot of money in savings accounts. Although it is necessary to maintain a healthy bank balance, however that may not be a financially sound decision as too much of money on the savings account can eat away your wealth generating capacity. While there are many investment options that can help you to earn higher returns, one of the simplest ways is by opting for the sweep-in facility.
The auto-sweep facility is a combination of savings account and FD or fixed deposit account. In this facility, your savings account is linked to fixed deposits where a monetary limit is defined. Once the amount in your savings deposit exceed the predefined limit, the excess funds will be transferred automatically to fixed deposits. The excess funds will attract higher interest rate. Also, you can
When we talk about interest rate, the real rate of interest plays an important factor. The real rate of interest is the interest rate given by the product minus the rate of inflation. A higher real rate of return will help you to fulfill your financial goals. Hence, higher the interest rate, higher will be the returns.
Conclusion: Savings account helps us to go through our day to day business. When selecting a savings account, it is better to opt for a savings account that pay a higher interest rate as it can help to earn higher returns and fulfil your financial goals.
Kotak Mahindra Bank gives you the highest interest rate of 5% on savings account. It is one of the best bank for savings account. You can open a savings bank account online with Kotak Mahindra Bank and get the benefits of higher interest rate.
