What Is a Savings Account? Features, Benefits & How It Works

A savings account is much more than a spot to park your funds. It is a way for you to prepare for the unexpected, plan ahead, and handle life’s small financial goals with confidence.

Suppose you just received your salary. You decided not to spend all of it. You transfer ₹5,000 into a separate account for later use. This simple decision is the starting point of using a savings account.

Through this blog, we will understand how this account works and why it’s one of the most common yet vital financial tools.

Understanding The Purpose Of A Savings Account

It is among the deposit account options you can open at banks. It allows you to safely keep your money. Also, you will earn a small return in the form of interest. It is not designed for everyday transactions like a current account. 

Features of Savings Account: 
 

How Does A Savings Account Function?

Your money in this account is used by your bank for loans, and in return, you earn interest. This interest is usually credited once every quarter.

Example:

If you keep ₹40,000 in your account and the bank offers 3% per annum:

• Annual interest = ₹40,000 × 3% = ₹1,200
   
• Quarterly interest = ₹1,200 ÷ 4 = ₹300
   

So, this ₹300 will get added to your account every three months. 

Why Is It Important To Have One?

A savings account is not just convenient; it is essential. The following are a few reasons showing why a savings account is a smart choice:

• Emergency Support: It gives you quick access to funds, helping you cover your unexpected expenses like medical bills.
   
• Achieving Personal Goals: It helps you stay focused, so you can easily save for your holiday, school fees, or down payment.
   
• Financial Control: If you save regularly, then you will develop better spending habits.
   
• Interest Income: Even a small amount of interest is better than letting your money sit idle.

Types Of Savings Accounts

Banks offer different versions of savings accounts as per your needs:
 

Each account has its own feature. They might also include their own set of terms and interest rates.

How To Open A Savings Account?

Opening a savings account is not like solving a challenging math problem. You can easily open it by either visiting a nearby branch or applying online.

1. Choose a Bank and Account Type

Before choosing, you must look at customer service, interest rates, and account features.

2. Keep These Documents Ready

• Aadhaar Card, Passport, or Driving Licence
   
• PAN Card or Form 60
   
• Passport-size photographs

3. Apply Online or Offline

Nowadays, almost all banks allow you to apply online through their website or mobile app. Otherwise, you can go to the branch and complete the procedure. 

4. Initial Deposit

Some account types require an initial deposit.

5. Account Activation

After checking your documents, your account will be opened. You will receive a debit card, account number, and passbook.
 

For more information, you can check the bank’s official websites, HDFC Bank, ICICI Bank, PNB Bank, or SBI Bank.

Extra Costs To Keep In Mind

Generally, most savings accounts are free to maintain. However, some charges might apply:

• Charges for not maintaining the minimum balance.
   
• Fees for exceeding monthly ATM withdrawals.
   
• SMS alert fee (in some banks).
   
• Annual debit card fee.
   
• Charges for duplicate cheque books or statements.
   

However, many banks are now dropping or reducing such fees. For instance, recently, Punjab National Bank has removed penalties for not managing a minimum balance in your savings accounts.

Canara Bank has waived the rule of maintaining a minimum balance across savings account types.

Recent Developments: Savings Account Interest Rates Decline

The following are the recent significant cuts by the banks:
 

Final Thoughts

A savings account is more than just interest. It is about building a habit. It provides you with a secure place to park your money. It allows you easy access to funds during emergencies. 

Now, it has become easier for you to open and maintain a savings account with banks like Punjab National Bank and Canara Bank, removing balance requirements.

You do not need to think that your deposit is small. Even a small deposit can grow into something meaningful. So, start saving today and take your first step towards financial discipline.

FAQs

1. Is interest from savings taxable?

Yes, but up to ₹10,000 per year is exempt under section 80TTA.

2. Is PAN mandatory?

PAN or Form 60 is required for most savings account applications.

3. How many accounts can I open?

There is no restriction on the number of accounts.

4. Has any bank recently removed the minimum balance requirements?

Yes, Punjab National Bank and Canara Bank have removed this requirement on savings accounts.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?