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Savings Account

The effects of interest rate fluctuations on savings accounts

Summary: Get insights into the connection between interest rates, and your savings account. Learn how changes in rates can impact your financial planning, and growth. Further, understand the key factors that drive the rate fluctuations, and know some smart ways to mitigate their effects.

18 Jul 2024 by Team FinFIRST

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A savings account is a powerful financial tool, that, if used smartly, can help build financial security for present and future. You can use it as a safe repository for your regular income and expenditures, from receiving your salary, to plan monthly budgets, to paying for groceries, rent, online shopping, loan EMIs automations, and as the primary source of fund for your monthly investments. A savings account also comes with an additional security, of insurance up to ₹5 lakh, from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

More importantly, a savings account not only offers you a safe place to deposit your hard-earned money but also lets you earn a certain rate of interest on the deposited amount. This interest rate matters a lot for millions of savers because it affects their savings growth.

Let’s analyse more aspects of interest rates, the factors that influence them, how these fluctuations impact savings accounts, and tips to offset their negative impacts.

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Understanding interest rates

An interest rate on a savings account is the percentage that banks pay on the money you deposit into your account. In India, these rates are set by individual banks but are affected by broader economic policies and market conditions. Rates can also differ across banks depending on their liquidity needs and policies.

Factors influencing interest rate changes in India

Bank interest rates in India are influenced by both domestic and global factors. The Reserve Bank of India (RBI) regulates monetary policy in India and makes decisions on important rates like the repo rate, which impacts interest rates across banks.

Other factors, like inflation rates, fiscal policies, GDP growth, market forces, and global economic trends, also affect interest rates.

How interest rate fluctuations impact savings accounts

Fluctuations in interest rates affect how much you will earn from savings accounts. When interest rates go up, you earn more on your deposits, making it a good time to save more. However, when rates go down, the growth of your savings slows down. Hence, you earn less and might experience a decline in your purchasing power over time.

Unlock higher interest rates: Benefits of opening an account and making fixed deposits

One way to capitalise on higher interest rates is through Metra Trust fixed deposits. You simply have to open an FD online, decide on an amount, and choose a tenure. Now, earn a fixed and stable rate throughout the tenure.

You can also choose Metra Trust savings accounts to earn competitive interest rates of up to 7.25% per annum. Besides a good savings account interest rate on your deposits, you get additional benefits like:

A digital and paperless account opening process.
Monthly interest credits in your bank account.
24/7 liquidity with free and unlimited ATM withdrawals.
Zero-fee banking features, including RTGS, IMPS, NEFT, SMS alerts, debit card issuance, demand drafts, and more.

Don’t delay the growth of your hard-earned money. Apply for an Metra Trust savings account today!

Use a savings account interest rate calculator to figure out the interest you can earn on your deposited balance. This will help you calculate your financial growth and make smart decisions about where to deposit your funds amidst fluctuating interest rates.

Short-term vs. long-term effect

In the short term, the impact of interest rate fluctuations on savings accounts may not be immediately noticeable as the changes accumulate slowly over time. However, even small alterations in rates can change one's perspective regarding saving or spending.

In the long term, these changes become more significant. Consistent low bank savings interest rates can erode the purchasing power of savings over time, as the returns may not keep up with inflation.

Tips to mitigate negative impacts

To minimise the negative effects of fluctuating interest rates, you can:

Select the right bank: Choosing a savings account that consistently offers competitive rates, like Metra Trust savings accounts, can be a wise decision.
Diversify: Spread your capital across fixed deposits, recurring deposits, debt mutual funds, etc.
Increase savings amount: When interest rates drop, try to increase your monthly savings contribution to offset the reduced earnings and maintain progress towards your targets.
Review and adjust from time to time: Monitor the interest rates and terms of your savings account and be ready to transfer your funds if another bank offers a better rate.

Conclusion

Interest rate fluctuations bring challenges as well as opportunities. By analysing these changes and adopting the right strategies, you can protect your financial future against the unpredictability of rate changes. All you have to do is stay updated, diversify investments, and remain adaptable in your savings approach.

Most importantly, choose the Metra Trust savings account for more growth, more convenience, and more security. Apply today!

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 Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust 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.

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