How is savings bank interest rates calculated???

Previously, the interest rate of 4% per annum was applied against the lowest balance available

in the account between the 10th and the final day of the month. This was seen as a very unfriendly method of calculation, as the depositor did not receive full benefits of the amount he maintains in his account. From April 2010 onwards, this changed and the savings bank interest is now calculated based on the daily balance method. This means that you will earn interest based on the closing balance you maintain every day, giving you the maximum benefits. For example, let's say that your bank pays you an interest rate of 5% on your savings bank account. You have the following transactions during the month:

1st of the month: Balance in the account is Rs 3 lakhs

21st of the month: Withdraw Rs. 1 lakh ' Balance in the account is Rs 2 lakhs

25th of the month: Deposit Rs. 2 lakhs ' Balance in the account is Rs 4 lakhs

31st of the month: Balance in the account is Rs 4 lakhs

Your savings bank interest amount will be calculated at 5% on Rs 3 lakhs for 20 days, Rs 2 lakhs for 4 days, and Rs 4 lakhs for 7 days, instead of the earlier method wherein the interest is calculated on the minimum balance of Rs 2 lakhs. Thus, you stand to earn more in the present times than what you might have earned in the past.

This Article is written by CMA Samir Biswal. He can be reached at cmasamirbiswal@gmail.com