Does inflation severely affect Savings Account interest rates?

In the complex financial world, the relationship between inflation and interest rates is important for policymakers, investors, and customers. Inflation is the rate at which the basic goods and services prices rise, decreasing the customers’ purchasing power despite the earnings. Interest rates, set by the RBI, can either stimulate or curtail inflation.

You can make informed financial decisions by understanding the intricate relationship between the Savings Account interest rates and inflation. The RBI employs the Consumer Price Index to gauge inflation rates in India. It is an accurate reflection of an average customer’s living costs.

Relation between inflation and interest rates

The accurate interest rate is a difference between the nominal and inflationary rates. For instance, if the bank offers 5% interest and the inflation rate is 3%, the real interest is 2%. It means your savings are growing by 2% annually after inflation. The RBI actively manages the interest rates to stabilise the Indian economy and control inflation. They use some tools for the same:

  • Bank rates: These are the rates the RBI uses to lend money to commercial banks without security.
  • Statutory liquidity ratio: The percentage of all bank deposits, such as government bonds, gold, or other approved security forms, maintained with the RBI is called the SLR.
  • Open market operations: Open market operation involves the sale and purchase of government securities in the banking system to adjust fund amounts in the open market.
  • Cash reserve ratio:This is the percentage of total deposits that all banks should maintain as liquid cash with the central bank.
  • Repo rates:The central bank lends money to commercial banks against government securities for short terms at repo rates.
  • Marginal standing facility:It helps banks borrow funds from the RBI against government securities.

How does inflation affect the interest rates?

The interplay between inflation and Savings Account interest rates directly impacts savers. When interest rates fall to stimulate spending and investment in the economy, saving becomes less attractive. The returns on Savings Accounts change, and real returns might be in negative due to inflation. When interest rates rise to curb excessive inflation, saving becomes more exciting. You can always check on the bank website or app for details.

How to check them?

The best way is to go online and check them often. It includes all the details about the bank offerings, interest rates, tenures, and other valuable investments. However, you may not face such concerns with certain Bank Accounts like Zero-Balance Accounts.


Understanding the dynamic between inflation and interest rates is the key to making the right financial decisions. If inflation is high and rates are low, invest your money in assets offering potentially higher returns than Bank Accounts. Monitoring them helps unlock smarter financial choices.