{"id":899,"date":"2016-04-08T12:56:28","date_gmt":"2016-04-08T07:26:28","guid":{"rendered":"http:\/\/easybankingtips.com\/?p=899"},"modified":"2023-08-11T11:18:32","modified_gmt":"2023-08-11T05:48:32","slug":"savings-account-interest-calculation","status":"publish","type":"post","link":"https:\/\/easybankingtips.com\/savings-account-interest-calculation\/","title":{"rendered":"Interest on Savings Bank Account: How Is It Calculated?"},"content":{"rendered":"
The interest on savings account<\/a> is calculated on a half-yearly basis and it’s usually credited\u00a0in June and December. While the interest amount varies\u00a0depending on the type of account, it may also differ\u00a0from bank to bank. This particular practice has been operative since\u00a030th October 2011 when RBI announced deregulation of savings bank deposit interest rate<\/a> thereby making the\u00a0banks free to determine\u00a0their saving interest rate.<\/p>\n The interest on savings account are non taxable up to Rs.10,000. Also, if the interest crosses the threshold limit it becomes subject to tax.<\/span><\/p>\n Prior to that all banks were following a uniform interest rate of 4%. Deregulation has helped account holders earn more interest. However, except for a few private sector banks such as Kotak Mahindra, YES bank or Bandhan bank who are currently offering higher interest rate, majority of bank such as SBI, HDFC, and Axis are still at 4%.<\/p>\n Previously,\u00a0the calculation was different. Though it was 4% per annum, the banks used to pay interest on the lowest available balance in the account between the 10th<\/sup> and last day of a month. Any deposit made in between would not attract any interest, but the withdrawals were taken in to consideration to calculate interest for the month.<\/p>\n Example<\/strong> – \u00a0As on 10th<\/sup> of July Mahesh has Rs.10,000 in his savings account, and on 15th<\/sup> his father sends him Rs.40,000 for hostel fees and other expenses. On 30th<\/sup> he withdraws Rs 45,000 and the remaining balance in the account comes down to Rs.5000. Assuming that there is no other deposit or withdrawal made in between, in this case the bank will calculate interest on Rs.5000, which is the lowest available amount between 10th<\/sup> and 31th<\/sup> July. Here the interest calculated for July will be Rs.16.66 at 4% per annum.<\/p>\n However, the above method was seen as unfriendly as customers couldn\u2019t receive full benefits of the amount they maintained in the account. So with effects from April 1, 2010 the banks started calculating interest on a daily balance method following the guidelines laid down by RBI<\/a>. This means the interest credited will be based on the closing balance you maintain every day, giving you the maximum benefits.<\/p>\n Let\u2019s see how Mahesh benefits from the new interest calculation rules.<\/p>\n Balance in Mahesh\u2019s account<\/p>\n On 1st<\/sup> july= Rs.10,000<\/p>\n On 15th<\/sup> july= Rs.50,000<\/p>\n On 30th<\/sup> july= Rs.5000 (after he has withdrawn Rs.45,000)<\/p>\n On 31Th July= Rs.5000<\/p>\n Now at 4% per annum rate of interest, Mahesh will get<\/p>\n Interest on Rs.10,000 for 14 days = Rs.16<\/p>\n Interest on Rs.50,000 for 15 days = Rs.80<\/p>\n Interest on Rs.5000 for remaining two days = Rs.2<\/p>\n Total interest he earns= Rs. 98<\/p>\n The comparison makes it absolutely clear as of which calculation method earns more interest.<\/p>\nHow Do Banks Calculate Your Savings Account Interest?<\/h2>\n