The term “savings rates” is used in two different ways in finance. It can refer to a statistic which determines how much money people are saving at a given time and it may also be used to discuss the rates offered by banks and other financial institutions on their savings accounts. When people talk about the “national savings rate” they are referring to the first sense of the term, while discussions about “the best savings rate” involve individual rates offered by financial institutions.
Governments track the savings rate because it can be a strong economic indicator. People tend to save more money during periods of economic uncertainty because they are concerned about their long term financial welfare, causing savings rates to rise. By contrast, in boom periods, people may save less because they are under the impression that more money will always be available. Changes in savings rates can be used with other economic indicators to learn more about how the economy is doing and to judge consumer attitudes.
There are debates about the most ideal savings rates for populations. Some people feel that low savings rates often correlate with a reliance on credit, which can be dangerous, and at certain periods in history, savings rates have actually gone into negative numbers, indicating that people are spending more than they are earning. Others feel that locking up too much income in savings can have a negative impact because it means that people have less disposable income to spend and this can contribute to declines in consumer spending.
Some nations have more of a culture of thrift than others and may have relatively stable and high savings rates at all times. Other nations have a rate which fluctuates much more in response to market forces. One thing to consider when looking at savings rates is how they are calculated. Many nations determine the savings rate by subtracting immediate expenses from earnings, with expenses for loan servicing not being counted as expenses. This means that things like student loan repayments are considered “savings,” which may come as a surprise to some consumers and can skew the savings rate; for instance, if mortgage payments are high it can lead to a high savings rate because people are putting much of their income into paying off their mortgages.
In terms of bank rates, savings rates can vary widely depending on the financial institution and the economy. People are often encouraged to compare rates before deciding where to put their money so that they can get the best rate and the best terms.