Saving your hard-earned money is an excellent financial habit. Considering the rising expenses, keeping a chunk of your disposable income aside is essential. But what do you do if you do not know where to park this money? In times like these, a Savings Account serves as a viable option. It is an interest-bearing banking facility that holds funds you do not plan on spending immediately. It helps you earn through interest rates once you start depositing.
It is essential to know about the interest rate structure and the factors that influence it. It enables you to anticipate your wealth growth. So, here is a guide that covers these aspects:
Why do banks offer interest rates on Savings Accounts?
When you open a Savings Bank Account, you establish a deal with your banking partner. As you start depositing money regularly, the bank gets the opportunity to lend this sum to other customers in the form of loans. In this manner, you indirectly help the bank in fulfilling its ventures. However, banks do not take this help for granted. They provide you with interest rates on your Savings Account. As a result, you yield interest earnings whenever you deposit funds.
What factors influence Savings Account interest rates?
The structure of Savings Account interest rates relies on various factors:
Your bank’s policy
Every bank operates on a different set of policies, which affects the interest rate structure. Fixed Deposit interest is generally higher than Savings Account. It is best to compare the rates before opting for a banking partner. That way, you can choose one that offers a relatively higher rate.
The closing balance is the amount of money left in the account at the end of every accounting year. It significantly influences the Savings Account interest rate. For example, your interest rate will also be low if your closing balance has been low since you opened the account. Thus, it is wise to track it on your Banking app.
The economic conditions of the country also dictate the interest rate policy. If the economy fairs poorly, the interest rate will be impacted negatively, and vice versa.
Demand & supply
Demand and supply influence the Savings Account interest rate considerably. For example, if the demand for Loans rises, the interest rates will shoot up. But if the supply of credit increases, there will be a decline in the interest rates. Assessing this factor is slightly tricky as it involves complex analyses. But it is good to have knowledge about it.
A shift in the general wage rates influences interest rates. To put this into perspective, a rise in wages results in a rise in interest rates. This is because of the increase in disposable income. When you have more disposable income, you can maintain higher amounts in your Bank Account. This attracts a high-interest rate as it presents you as an ideal account holder.