What is a Saving Account?
A Savings bank account is the most common operating account for individuals and others for non-commercial transactions. Saving accounts are opened to encourage the people to save money and collect their savings. Banks generally put some ceilings on the total number of withdrawals permitted during specific time periods. Banks also stipulate certain minimum balance to be maintained in savings accounts. Banks as a rule do not give overdraft facility in a saving account, but allow occasional overdrawing to meet contingencies.
Who can open a Saving Account?
- by a person in his / her name;
- by two or more persons in their joint names payable to;
- Certain non-profit welfare organizations are also permitted to open Savings bank accounts with banks.
Features of Saving Bank Account
The main features of saving account in bank are as follows:
- Saving account promotes saving habit
- It enables the depositor to earn income by way of saving bank interest
- There is no restriction on the number and amount of deposits.
- The money can be withdrawn either by cheque or withdrawal slip of the respective bank.
- There is no maximum period of holding.
- A minimum amount has to be kept on saving account to keep it functioning.
- Electronic clearing System (ECS) or E-Banking are available to pay electricity bill, telephone bill and other routine household expenses. All equated monthly installments (EMI) for housing loan, personal loan, car loan, etc., are paid (routed) through saving bank account.
- Provides immediate funds as and when required through ATM.
- It provides a facility such as Electronic fund transfer (EFT) to other people’s accounts
Interest on Saving Bank Account
In the past when RBI had regulated the savings bank interest rate, all banks were offering the same interest rate, which was 4% per annum. When RBI brought about changes in 2011, banks became free to decide the interest rate they wanted to pay on their savings bank accounts. Now different banks offer the interest rate according to their profit & policy i.e. between 4% – 6%
Previously, the interest rate of 4% per annum was applied against the lowest balance available in the account between the 10th and the final day of the month. This was seen as a very unfriendly method of calculation, as the depositor did not receive full benefits of the amount he maintains in his account. From April 2010 onwards, this changed and the savings bank interest is now calculated based on the daily balance method. This means that you will earn interest based on the closing balance you maintain every day, giving you the maximum benefits.
Taxation of Savings Bank Interest Rates:
Interest earned on savings bank accounts is not subject to Tax Deduction at Source. But this exemption is only applied up to an interest earning of Rs. 10,000 in a year, and if the interest earned from Savings accounts crosses this limit, it becomes subject to tax.