How savings account interest rates affect us?

When banks cut savings account interest rates they are not kind to its customers. Even a small change results in a major difference to your savings balance. And sometimes depositors may be stuck with lower rates for long. Interest rates determine the earnings of account holders they receive on their deposits.
Interest rate is also referred to as the ‘price of money’. It is a reflection of country’s economic growth and monetary policy. While an increase in rates makes savings more attractive and encouraged, a dip reduces the rewards and discourages savings. A lower interest rate also encourages other forms of saving and investment like buying shares, mutual funds, etc.

Why interest rates fluctuate?

Understanding why savings account interest rates rise and fall can help consumers remain more informed and initiate better financial decisions. Rates fluctuate as a result of the government’s initiatives to keep our economy stable. They reflect demand from borrowers and supply of funds that can be given on loan.

When interest rates go up 

This leads to less demand for goods and services, which causes sellers to drop their price and stabilise the market.

• Customers see a rise in interest rates of CDs, money market accounts and basic savings accounts
• It becomes more expensive to take a loan 
• People borrow less money 
• People buy fewer things.

When prices dip

• Savings vehicles could generate smaller returns
• As Bond values fall, investors lose principal value
• Reduces the monthly cost of mortgage repayments
• Cause a rise in consumer spending.

Apart from these factors, fluctuation in savings account interest rates also affects the following points

Mortgage payments: Consumers with adjustable-rate mortgage see the changes in rate and payments can potentially increase or decrease, but things do not change for fixed-rate mortgage consumers.

Credit card rate: The annual percentage rate (APR) on most credit cards is variable. An increase in the target rate will raise the interest rate while a decrease will lower the interest rate making it easier to pay down debt faster.

Stay aware

It is important to remain vigilant when it comes to money matters. You must also thoroughly scan the bank’s terms and conditions to find out if it is obligated to notify its customers of changes in rate. If it is not mentioned, it is the customer’s duty to keep track of it. Secondly, check your monthly account statements to stay on top of your current interest rate.

The rise and fall of interest rates are not easy to predict. Remember, a small change in savings account interest rates affects your day-to-day life. It could make an impact on the cost of getting a loan. 

For more information click on https://savingaccount.in/