Saving your hard-earned money is the best financial habit. Maintaining a chunk of your disposable income aside, along with rising expenses, is essential. But what to do if you do not know where to park this money? In such times, a Savings Account serves as a viable option. It is an interest-bearing banking product that holds funds you do not plan to spend immediately. It helps you earn through interest rates once you start depositing.
You should be aware of 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 Bank Account online, you enter a deal with your banking partner. As you deposit money regularly, the bank lends this sum to other customers as Loans. In this manner, you indirectly help the bank in fulfilling its ventures. However, banks do not take this assistance for granted. They provide you with interest rates on your Savings Account. This way, you yield interest earnings whenever you deposit funds.
Factors influencing Savings Account interest rates
The structure of Savings Account interest rates relies on various factors:
Your bank’s policy
Every bank operates on different policies, which affects the interest rate structure. Fixed Deposit interest is generally better than Savings Account. It is ideal for comparing the rates before opting for a banking partner. That way, you can choose the one that offers a relatively higher rate.
Closing balance
The closing balance is the amount left in the account at the end of every accounting year. It significantly influences the Savings Account interest rates. For example, your interest rate could be low if your closing balance has been low since you opened the account. Thus, it is best to track it on your Banking app.
Economic conditions
The country’s economic conditions also dictate the interest rate policy. If the economy fairs poorly, the interest rate gets impacted negatively, and vice versa.
Demand & supply
Demand and supply also influence the interest on Saving Account considerably. For example, the interest rates also rise if the Loan applications increase. However, if the supply of credit increases, there will be a decline in the interest rates. Assessing such factors is slightly tricky as it involves complex analyses. But you should hold knowledge about it.
Your income
A shift in your wage influences interest rates too. 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. You can maintain better balance in your Bank Account when you have more disposable income. This attracts a higher interest rate, making you an ideal account holder.
