We all know that bank gives interest for the money we keep in our saving account. Every year in the month of June and December we see some interests credited to our saving bank account. Earlier all banks have same Saving Account interests rates i.e 4% (currently sbi saving account interest rate is 3.5% for a/c balance of 1 crore and below). But after de-regulation of saving account interests rates by RBI, the banks are independent to decide their interest rates for Saving Accounts. Nowadays some banks give as high as 6 % interest on saving account. Most of the people do not know how to calculate saving account interest given by the bank in their a/c . They wonder when to keep more cash to get more interest. Whether drawing huge amount from the saving bank account during last days i.e 30th or 31st of any month will result in loss of interest money for entire month. I will discuss all these in this article and describe how banks such as SBI used to calculate interests on saving accounts. For a ready answer i am also providing a online saving account interest calculator to verify your interest given in your saving account.
Saving account interests calculation formulas
Interests on saving account are calculated using simple interests formula i.e
P-Money present in bank saving account
r- Savings account interest rates in % per annum ( it varies from bank to bank)
t – Time period for which money is present in saving account.
How do Banks calculates interest on saving accounts
Banks follows RBI guidelines for interest calculation. From April 1, 2010, RBI has given guidelines for all banks to calculate the interest on daily basis for the closing day balance on saving A/c. That means interest will be calculated for the money present every single day on the saving account.
As Rate of interest for saving bank account is expressed in % per annum
Therefore t-time period in above calculation becomes t/365, where ‘t’ is days for which money in bank saving account is constant.
Example of savings account interest calculation
Suppose I have Rs 1 lakhs in my bank account. I withdraw 25,000 cash from ATM on 11th August for my household expenses. On 30th I received Salary of 50,000 directly to my saving account. My bank gives 4% interest. The interest for the month of August will be calculated as follows.
Interest for first 10 days = 100,000 x 4 x 10/(365 x 100) =109.59
Interest for 11th to 29th day = 75,000 x 4 x 19/(365 x 100) = 156.16
Interest for 30th & 31st day = 125,000 x 4 x 2/(365 x 100) = 27.4
Total Interest for the months of August will be = Rs. 293.15
Some facts about saving account interest rates.
Banks do calculate interests on daily basis but credit the interest amount every 6 months in your saving account. RBI has asked banks to pay interest on savings banks account on quarterly basis or shorter duration; this will benefit crores of savings account holders.
Earlier, savings accounts interests were calculated on the basis of the least deposit in an account between the 10th and the last day of each month. And interests on saving account were fixed to 3.5 per cent.
In 2011 banks were allowed to decide and fix their interests rates independently.
Public sector banks such as SBI offer 4 % interest on savings accounts, while private banks offer as much as 6 % interests.