Savings Account

Savings Account

Table of contents:

  1. What Is a Savings Account?
  2. How Savings Accounts Work?
  3. Savings Account Advantages
  4. Savings Account Disadvantages
  5. Maximizing Earnings
  6. Opening a Savings Account
  7. How Much to Keep in the Account

What Is a Savings Account?

A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs.


Savings accounts have some limitations on how often you can withdraw funds, but generally offer exceptional flexibility that’s ideal for building an emergency fund, saving for a short-term goal like buying a car or going on vacation, or simply sweeping surplus cash you don’t need in the form of SDR/FDR account through auto sweep option(check bank customer service for auto sweep facility availability) so that you can earn more interest. You can also make SDR/FDR/RD by visiting branch or through various online digital platforms provided by bank these days.


  • Because savings accounts pay interest but keep your funds easy to access, they’re a good option for parking cash you’ll want in the short-term or to cover an emergency.
  • In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than more restrictive savings instruments and investments might pay.
  • The amount you can withdraw from a savings account is generally unlimited. But the number of withdrawal transactions you can make in a month is federally capped at six.
  • The interest you earn on a savings account is considered taxable income.


How Savings Accounts Work?

Savings and other deposit accounts are an important source of funds that financial institutions can turn around and lend to others. For that reason, you can find savings accounts at virtually every bank whether they are traditional brick and mortar institutions or operate exclusively online like DBS. In addition, you can also find savings accounts at some investment and brokerage firms too.

The rate you’ll earn on a savings account is generally same across the banks with the exception of promotions promising a higher rate linked with specific amount and time period.  

Some savings accounts will require a minimum balance in order to avoid monthly fees or earn the highest published rate, while others will have no minimum balance requirement. So it’s important to know the rules of your particular account to ensure you avoid diluting your earnings with fees.

Whenever you want to move money in or out of your savings account, you can do so at a branch or an ATM, by electronic transfer to or from another account using the bank’s app or website, or by direct deposit. Transfers can usually be arranged by phone, as well. 

It’s important to note, however, that while there are no limits on how much you can withdraw from your account (in fact, you can empty it and/or close it at any time). Although bank caps the frequency of withdrawals from ATM and there is also per day/month limit for number of transactions and amount capping for online digital fund transfer platforms; if you exceed the limit the bank may charge you a fee.

The interest earned on savings accounts is taxable income.


Savings Account Advantages

Savings accounts offer you a place to put your money that is separate from your everyday banking needs, allowing you to stash money for a rainy day or earmark funds to achieve a big savings goal. What’s more, the bank’s security measures, bank will keep your money safer than it would be under your mattress or in your sock drawer.

Beyond keeping your funds safe, savings accounts also earn interest, so it pays to keep any unneeded funds in a savings account instead of accumulating cash in your almirah, where it will likely earn theft risk and stress. At the same time, your access to funds in a savings account will remain extremely liquid, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon.

Many institutions allow you to open more than one savings account, which can be handy if you want to keep track of your savings progress on multiple goals. For instance, you could have one savings account to save for a big trip while a separate one holds surplus cash from your current account.

Savings Account Disadvantages

The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as other savings instruments. For instance, you can earn a higher return with certificates of deposit or Treasury bills, or by investing in stocks and bonds if your time horizon is long enough. As a result, savings accounts present an opportunity cost if used for long-term savings.

Also, while the liquidity of a savings account is one of its key benefits, it can also be a downside, as the ready availability of funds may tempt you to spend what you’ve saved. In contrast, it is much more difficult to cash in a bond, withdraw funds from a retirement account, or sell a stock than it is to take money out of your savings account.

Savings accounts are also a poor choice for funds you need to access frequently. If you’ll need to make withdrawal transactions more than six times per month—whether those are transfers or outright withdrawals at a branch or ATM—a savings account is not an appropriate vehicle for these funds.


  • Fast and easy to set up, and to move money to and from
  • Can be conveniently linked to your primary checking account
  • Up to your full balance can be withdrawn at any time
  • Up to Rs.5,00,000 is insured against bank failure


  • Pays less than you can earn with certificates of deposit, Treasury bills, or investments
  • Easy access can make withdrawals tempting
  • Only six withdrawals(varies Bank to Bank and as per account Min Balance) permitted per month

How to Maximize Earnings From a Savings Account

Although most major banks offer low interest rates on their savings accounts, many banks provide much higher returns. In particular, online banks offer some of the highest savings account rates. Because they don’t have physical branches—or have very few—they spend less on overhead and can often offer higher, more competitive deposit rates as a result.

The key is to start with the bank where you hold your current account. Even if that institution doesn’t offer a competitive savings account rate, it will give you a frame of reference for how much more you can earn by moving your surplus current account cash in savings account.

As you choose for the best rates, however, beware of account features that can curtail your earnings, or even drain them. Some promotional savings accounts will only offer the attractive rate they’re advertising for a short period of time. Others will cap the balance that can earn the promotional rate, with amounts above that maximum earning a paltry rate. Even worse is a savings account with fees that cut into the interest you earn each month.

How to Open a Savings Account

To set up a savings account, visit one of the bank’s branches, or establish the account online, for those institutions that offer it. You’ll need to provide your name, address, and Aadhar number, as well as photo identification, mobile and another basic details. As, the account earns taxable interest, you’ll be required to provide your PAN details.

Some institutions will require you to make an initial minimum deposit at the time you open the account. Others will allow you to open the account first and fund it later. In either case, you can make your initial deposit with a transfer from an account at that institution, an external transfer, or a deposit in person at a branch.

How Much to Keep in Your Savings Account

The amount you keep in your savings account will depend on your goals for the funds, or your use of the account. If you’ve set up the savings account to sweep excess funds from your current account, your balance is likely to vary regularly. In contrast, if you are building up to a savings goal, your balance will likely start low and increase steadily over time.

If you’ve instead established your savings account as an emergency fund, financial advisors typically recommend holding enough savings to cover at least six to nine months’ living expenses, giving you a financial cushion in case you lose your job, face a medical issue, or encounter another money-draining emergency. However, some analysts recommend keeping only some of that emergency fund in a simple savings account, while moving the rest of it to an account or instrument that earns a higher return.

“With a view to providing a greater measure of protection to depositors in banks the ‘Deposit Insurance and Credit Guarantee Corporation’, a wholly owned subsidiary of the Reserve Bank of India, has raised the limit of insurance cover for depositors in insured banks from the present level of ₹1 lakh to ₹5 lakh per depositor with effect from February 4, 2020 with the approval of Government of India,” the RBI said in a statement.

Here are 5 things to know about this scheme:

1) All types of bank deposits including savings, fixed and recurring, are covered under the scheme. The ₹5 lakh limit covers both principal and interest amount.

2) The Deposit Insurance and Credit Guarantee Corporation does not directly charge any premium from bank depositors but banks pay a premium for the cover.

3) It is to be noted that this deposit guarantee is invoked only if the bank gets closed. It cannot be released if the bank is a going concern.

4) All deposits maintained by the depositor across all branches of a particular failed bank are clubbed. Or in other words, if a person keeps deposits in different branches of a bank, they are paid a maximum of up to ₹5 lakh only on the aggregate amount.

5) Deposits maintained with different banks are not clubbed. The deposit insurance scheme covers all banks operating in India including private sector, co-operative and even branches of foreign banks in India.

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