Savings accounts are one of the basic banking facilities offered by banks. This account is used by bank customers to deposit money from time to time. One of the main benefits of having a savings bank account is the customer can access the account as per requirements. So, he/she can make transactions or deposits anytime.
Savings bank accounts offer interest at 3.5-4% a year. Earlier, all banks offered the same interest rate on SB accounts. After 2011, the RBI has mandated that banks are free to decide the rate of interest on the savings bank account. Currently, there are a few banks that offer interest rate at 5% to 6% a year on saving bank accounts above a certain amount.
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Banks used to offer 4% interest on SB deposits. The lowest balance in the account between the 10th and the final day of the month was considered for calculation of interest.
This method of calculation was not very popular as the account holder did not get the full benefits of maintaining deposits in the savings bank account. The scenario changed in the year 2010 when a new method of calculation was adopted, based on daily balance method. This method helps the depositor earn interest on the closing balance maintained each day. This ensures the depositor earns the maximum on the balance maintained in savings bank account.
De-regulating the saving bank interest regime has bought about some positive changes. In today’s competitive market banks get to decide their own interest rates on savings bank account. Attractive interest rates on savings bank account helps banks gain customers. This increases the market competition among banks. Consequently, this helps the customers earn more interest. The customers can opt for these low cost savings accounts and earn interest on quarterly basis.
Currently, there are a few banks like RBL bank, Kotak Mahindra and Yes Bank, which are offering high interest rate of 5% to 6% a year for savings bank accounts. However, majority of the public sector banks and private banks are offering interest rate of 3% to 4% on deposits made in savings bank account. This is because an increase in interest on savings bank accounts, results in increased interest rate on short term deposits offered by the banks.
Increase in interest rate on deposits, leads to reduction in the net interest margins of the bank. Consequently to maintain profit margins these banks will increase the interest rate on loans. So, borrowing money from these banks gets costly.
SEE ALSO: Savings Bank interest rates
It is clear that the interest rate on savings bank account is not the only determining factor for customers in choosing a bank. As banks play an important role in the day to day transactions, there are other factors that must also be considered like customer care service, quality of service, modern banking facilities, user friendly interfaces, number of branches, friendly staff, and interest rate on other financial products and so on. In the case of HDFC Bank, their low cost deposits as a proportion to total deposits are very high at 45%. Banks with a high proportion of low cost deposits, offer loans at low rates.
The savings bank account holder is liable to pay taxes on the interest he earns on deposits. As per amendment in the Income Tax Act, from 1st April 2012, a deduction up to Rs 10,000 is allowed under Section 80TTA on interest earned on savings account during the financial year. If the interest amount earned is more than Rs. 10,000 than the account holder has to pay tax on interest earned over and above the exempt limit of Rs 10,000 in the year.
There are few banks that offer lucrative rates of interest on savings bank accounts. Most of the banks offer interest rate of 3% to 4% on saving account deposit on a quarterly basis. However some banks are currently offering interest up to 6% on savings account thus luring customers to earn handsome interest on a quarterly basis. However, you need to keep in mind a few factors before switching your current account. They are as follows:
SEE ALSO: Taxation of Savings Bank Interest rates
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