Saving your hard-earned money is a good financial habit. Considering the rising expenses, maintaining a chunk of your disposable income aside is essential. But what if you do not know where to park it? In such times, Savings Accounts is the ideal option. It is an interest-bearing product that holds the money you do not plan to spend immediately. It lets you earn enough interest rates once you start depositing.
However, you should be aware of the interest rate structure and the factors that influence it. This lets you anticipate your wealth growth. This guide covers everything.
Why do banks offer Savings Account interest rates?
The moment you open a Savings Account, you enter a deal with your banking partner. As you deposit money regularly, the bank can lend this sum to other customers as Loans. This way, you indirectly help the bank in fulfilling its goals. However, banks do not take this help for granted. They provide you with interest rates. As a result, you yield interest whenever you deposit funds.
Factors influencing Savings Account interest rates
The Savings Account interest rates relies on various factors:
Bank policies
Every bank operates on different policies, which then affects the interest rate structure. For instance, Fixed Deposit interest rates are generally higher than Savings Accounts. You need to compare different rates before selecting a banking partner. That way, you can select the one that offers a better rate.
Closing balance
The closing balance is the amount left in your account every accounting year. It highly influences the interest rates. For example, your interest rate will be lower if your closing balance is low since you opened one. Thus, it is wise to track them on a Banking app.
Country’s economic situation
The country’s economic conditions also dictate the interest rate policies. If the economy fairs poorly, the interest rate gets impacted negatively, and vice versa.
Demand & supply
Demand and supply influence the interest rate on Savings Account considerably. For example, interest rates rise if the demand for Loans rises. But if the Loan supply increases, there will be a decline in the interest rates. Keeping a check on this factor is slightly tricky as it involves complex analyses. But it is best to have the desired knowledge about it.
Income
A shift in your basic income influences interest rates. So, such a rise results in a rise in interest rates. This is because of the increase in income. When you have higher disposable income, you can maintain a higher amount in the Bank Account. This attracts better rates as it presents you as an ideal account holder.
