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Savings Account
Understanding High Interest Savings Accounts in India
Key Takeaways
Interest on savings accounts has been largely overlooked by customers in the past due to RBI regulations
- Now banks offer even 6.50% interest rate, but it is subject to various terms and conditions
- Finding which bank gives the highest interest on a savings account is important, but it's not the only factor
- IDFC FIRST Bank offers competitive interest rates with a host of customer-first features
For decades, savings accounts in India have served a transactional need. It has been a tool to park your day-to-day liquidity and enable easy liquidity at all times. Interest on savings accounts has been a welcome source of income, but it has never received much consumer attention. This was primarily because interest on savings accounts was heavily regulated by the Reserve Bank of India (RBI).
However, in the deregulated era, interest on savings accounts has become more competitive. Banks are willing to offer higher interest rates because it would attract more customers and deposits. This, in turn, is good news for customers, as they can explore different interest rates and choose a bank that offers the best rate. In other words, interest on savings accounts has become an important criterion for customers when choosing a bank.
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The journey towards high interest rates
In pre-independence India, interest on bank accounts was decided by the British government. After independence, it was dictated by the RBI. People used savings accounts more as transactional accounts, earning interest mostly between 3.5% and 4.5%. Until 2010, the RBI ensured that interest on savings accounts remained below 4.5%.
After deregulation in October 2011, many private banks began offering higher interest rates on savings accounts. Public sector banks mostly maintained low interest rates similar to those in the pre-deregulation era. COVID forced the hands of all banks, and interest on savings accounts plummeted sharply. However, in recent years, it has climbed back up again, making high-interest savings accounts available again in India.
Is 6.50% a myth or reality?
While 6.50% as interest on savings accounts is not a myth, the reality is much more spread out in the fine print. Let us understand which bank gives the highest interest rate in India. If your balance in the savings account is less than ₹1 lakh, the interest income can be as low as 1.5% and as high as 3.25%.
If you increase your balance up to ₹5 lakhs, you will find banks that offer 5 or even 5.5% interest on savings accounts per annum. It is worth noting that the best high-interest savings accounts in India are offered primarily by private and small finance banks.
When the deposit increases to ₹10 lakhs, more banks appear in the circa 5% bracket. However, many banks continue to offer 3-4% even for loans of ₹5 to 10 lakh. Once the balance exceeds ₹10 lakh, more banks can be seen offering savings account interest rates in the 5-6% range. For instance, you may notice a bank’s interest rate chart read “6.50% (On balances above ₹25 lakh and up to ₹50 lakh).
According to an RBI source, the average savings account balance in India was around ₹30,000 in 2023. As cited above, high interest on savings accounts is available at some banks, but mostly on high account balances. Therefore, earning a 6.5% on a savings account is not the norm for the average Indian banking customer. Besides, there may be other terms and conditions attached apart from the balance slabs.
For instance, IDFC FIRST Bank offers an interest of 6.5% on balances above ₹10 lakhs and up to ₹10 crores. However, it is a progressive interest rate. The interest is 3% on the first ₹1 lakh, 5% on the next ₹9 lakh, and 6.5% on the remaining balance. Besides, interest rates are subject to periodic changes; it is important to check them beforehand. IDFC FIRST Bank is transparent about these terms and conditions, and all relevant information is prominently published on its website.
Notably, which bank provides the highest interest rate on a savings account is worth knowing; you should also understand how it is calculated.
Calculating interest on savings accounts
Unlike interest income on fixed deposits, interest on savings accounts is not something you can calculate on your fingertips. To calculate interest on savings accounts, the daily closing balance is used. This means that the higher your closing balance on a given day, the more interest you earn that day. To do so, it is ideal to maintain a high minimum balance every day, i.e., not withdrawing more than a certain amount from the account.
While interest is calculated on your daily closing balance, it is not accrued in your account every day. The interest so calculated is credited at regular intervals. Quarterly credit of interest income has been the standard practice among banks in India and continues to remain so even now.
Few banks, like IDFC FIRST Bank, offer a monthly credit interest. This makes a significant difference to your long-term interest income. When your interest income is credited monthly instead of every 3 months, your balance continues to rise faster. This leads to faster compounding of interest income. You may find several banks that offer high interest rates on savings accounts, and some may even offer monthly credits. But there is a host of other aspects to consider as well.
Other considerations beyond interest rates
In today’s world, it is important to choose a bank that offers a seamless digital banking experience. This includes a state-of-the-art mobile banking app with features such as instant fund transfers, easy bill payments, and digital onboarding.
Besides, your bank should be transparent and clear about its interest structure, have easy-to-understand terms and conditions, and be clear about the costs and facilities offered. When it comes to costs, penalties and charges should be clearly indicated, including debit card charges, ATM withdrawal limits, non-maintenance penalties, etc.
IDFC FIRST Bank: 6.5% and beyond
Apart from its competitive offering of up to 6.5% interest on savings accounts, IDFC FIRST Bank stands out for a multitude of reasons.
Unlike most banks, IDFC FIRST Bank offers monthly interest credits. It not only leads to faster compounding but also to an alternate monthly source of income and better liquidity.
Its intuitive mobile banking app is ideal for instant account opening, digital onboarding, executing and tracking real-time transactions, and seamless everyday banking transactions.
IDFC FIRST Bank is fully transparent to its customers. It has clearly defined interest slabs and conditions under which interest is offered, unambiguous terms and conditions, and provides easy access to information for its customers.
These reasons give IDFC FIRST Bank a strong balance of competitive interest returns, a user-friendly digital experience and a customer-first approach.
The final say
It is obvious that regular savings bank interest rates mostly range between 2.5% and 4%, making an interest rate of 6.5% an exception rather than the norm. When offered, this interest comes with specific conditions. While earning it is profitable, customers should combine a high interest rate with transparent terms, monthly interest credits and a peerless digital banking experience. This makes IDFC FIRST Bank the ideal choice for customers looking for high interest on savings accounts. Open your IDFC FIRST Bank Savings Account today!
Frequently Asked Questions
Which bank offers the highest interest rate on savings accounts in India?
Private and small finance banks, including IDFC FIRST Bank, offer some of the highest savings account interest rates, going up to around 6.5% depending on balance slabs.
How is interest calculated on a savings account in India?
Savings account interest in India is calculated on the daily closing balance and typically credited monthly or quarterly.
Can you really earn up to 6.50% interest on a savings account in India?
Yes, but higher rates like 6.50% usually apply only to higher balance slabs and specific account conditions.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.
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