Savings Rate

Reviewed by Bhavana | Updated on Sep 30, 2020

Meaning of Savings Rate

The savings rate is a measure of the amount of money which an individual deducts from his/her disposable personal income to keep aside as a nest egg or for retirement, expressed as a percentage or ratio.

In economic terms, saving is a decision to forego some current consumption in favour of higher future consumption, so the savings rate represents the time preferences of an individual or community. The rate of savings always has to do with the marginal tendency to save.

The accrued cash can be kept as currency or bank deposits, or it can be placed into savings, such as a money market fund depending on different variables, such as the planned retirement time, or a personal retirement account made up of non-aggressive mutual funds, stocks, and bonds.

What Factors Influence a Savings Rate?

Anything affecting the desired rate of time can affect the rate of savings. Economic circumstances, social structures, and characteristics of individuals or of the population may all play a role.

In determining the savings rates, economic conditions, such as economic stability and total revenue, are relevant. Periods of high economic instability, such as recessions and economic shocks, appear to cause an increase in the rate of savings as people delay current spending to brace for an uncertain future.

Lets Understand a Savings Rate in Detail

A savings rate is computed by either an individual's degree of time choice or as an average over a number of people. Time preference is the degree to which a person or group of individuals prefers current versus future use. The more someone now wants to buy goods and services, the higher their time demand and the lower their savings rate would be, as compared to it in the future. Time preference is the principal economic cause of the savings rate observed.

Related Terms

  • Provident Fund (PF)

    A provident fund is a government-managed, mandatory retirement <a href="/g/terms/savings">savings</a> scheme used in India, Singapore, and other developing nations.  

  • Joint Account

    A joint account is a bank account, which is shared by two or more individuals.  

  • Earnest Money

    Earnest money refers to the deposit paid by a buyer to a seller, reflecting the good faith of a buyer in purchasing a home.  

  • Senior Citizens Saving Scheme (SCSS)

    The Senior Citizens Savings Scheme (SCSS) was implemented with the main objective of providing daily <a href="/g/terms/income">income</a> for senior citizens in the country after they hit the age of 60 years.  

  • Land

    The land refers to a <a href="/g/terms/property">property</a> or real estate, except buildings and facilities allocated by fixed spatial boundaries.  

  • Encumbrance

    An encumbrance is a charge by a party who is not the proprietor against a property.  

Recent Terms

  • Capitalisation Rate

    In the commercial <a href="/g/terms/real-estate">real estate</a> world, the capitalisation rate (also known as cap rate) is used to denote the rate of return expected to be created on immovable property.