Banks offer savings accounts to promote more savings and provide access to funds whenever needed. Unlike current accounts, financial institutions offer interest rates on savings accounts to counter inflation and provide extra income to accountholders to meet their short-term financial goals. For easy onboarding, banks provide an online account opening process that takes a few minutes to open a savings account.

However, on having a refined look, a savings account serves multiple purposes, which we will discuss along with the tax implications on savings accounts.

Purpose of a savings account

A savings account is designed to facilitate account holders to keep their money secure and provide them with funds whenever needed. Banks offer interest rates on savings accounts to tackle inflation and save your money from devaluating.

A few banks, like the IDFC FIRST Bank, offer high interest in savings accounts that help you grow your wealth over the period and meet your short-term financial growth. In addition, you get monthly interest credits to amplify your benefits.

When you open a savings account, you can access your money for daily expenses such as withdrawing cash through ATMs, paying utility and credit card bills, transferring money, etc. These accounts offer a better alternative for safely parking your hard-earned money since it is not wise to keep your money at home in large amounts.

What are the advantages of savings accounts?

Along with the convenience of online account opening, you get several benefits and features on savings accounts. Some crucial advantages of savings accounts are mentioned below:

1. Beat inflation with interest

By offering interest rates on your deposited funds, banks keep your money from devaluating due to inflation which, otherwise, would not be possible if you keep your funds at home. Moreover, if you use your account conservatively, you can save more to meet your financial objectives.

2. Secure and reliable

Banks offer a secure avenue for keeping your hard-earned money safe. By opening a savings account, you reduce the liabilities from your shoulders, and banks are responsible for keeping them secure. You get multiple security checks and verification levels to avoid fraudulent transactions.

3. Pay bills conveniently

When you open a savings account, you can pay your bills online from the comfort of your home. To pay your bills, you need to enter your customer ID, choose the amount on the mobile app or the portal and make payments.

4. Access online banking round the clock

Right from online account opening to accessing various financial services, banks offer a convenient banking experience through a savings account. You need an active internet connection and a mobile phone or laptop to access your bank account online.

5. Enjoy comprehensive financial services

In addition to easy fund access, you also get a range of financial services when you open a savings account. Using your savings account, you can open deposits, current, and investment accounts and transfer money to these accounts to meet your financial requirements.

Tax implications of a savings account

Since savings accounts offer capital gains over the period, there are some tax liabilities on these accounts. The amount deposited in these accounts is not taxable, but the interest you earn on the deposits is taxable.

Knowing the taxation rules on savings account interest can help you with tax planning. As per the income tax rules, the interest earned on the savings accounts is taxable irrespective of the interest offered on the savings account. The taxes on savings accounts are paid under ‘Income from other sources.’

However, as per Section 80TTA, you can save taxes on interests of up to ₹10,000 every financial year. It applies to individuals in the category of HUF (Hindu Undivided Family). All the savings accounts in different banks are considered while filing the tax deduction.