Savings Account Interest Rates – Forbes Advisor INDIA
The interest rate on a savings bank account is crucial because it helps the consumer determine how much they can earn on the parked money. Both public and private sector banks offer interest on their savings accounts to allow users to earn maximum interest.
We’ve put together a list of savings account interest rates to help you choose the account that best suits your needs.
How do banks calculate interest?
Banks in India calculate interest daily on the closing amount of that particular day; let’s understand this with an example. An account has INR 1 lakh at the end of the day and the bank provides 3% interest, then the simple interest formula will be used to calculate the interest on that sum for that particular day.
The procedure is as follows:
100,000 X 3/100 X number of days/ 360
100,000 X 3/100 X 1/360 = INR 8.333
INR 8.333 is the interest for a single day.
X = multiplication sign
This process will take place every day on the amount and will be credited to the account every month. Once the amount is credited, the aggregate (amount + interest) will be considered as the principal amount, this means that the account holder will get interest on the amount deposited by him and also on the interest he received from the bank . This method is known as compound interest.
Role of Repo Rate in Interest Calculation
Some of the banks as per the tables below have linked their interest rates to the repo rate and therefore any fluctuation in the repo rate will also change the interest rate. Now, to better understand this process, we will first need to understand the term repo rate.
- The repo rate is the interest at which the central bank of a country (RBI in India) transfers money to other banks.
- RBI recently increased its repo rates.
As we understand that the repo rate is the interest at which banks get loans from RBI so any increase in it will increase the financial burden on the bank, although RBI lends money at a rate of lower interest than the banks charge their applicant but nevertheless the burden of the increase will ultimately fall on the bank’s customers. Eventually, customers pay more interest on their loans.
While this increases the burden on people repaying their loans, it is beneficial for people’s deposits like savings and time deposits (FDs) making them more valuable to banks as they meet their cash needs. without borrowing money from an external source like RBI. . Therefore, increasing the repo rate will increase the interest rate on any type of deposit.
There is no standardized rule to link interest rates to repo rates and banks apply it as they see fit, for example Axis Bank a month ago had deposits above 10 crore linked to repo rate. After the RBI raised the repo rate in May, Axis Bank switched to the simple interest method and stopped linking the interest rates offered to the repo rate.
The formula for applying repo interest rates is also not standardized and differs from bank to bank.
Public sector bank interest rates
The Indian government has merged a few public sector banks for ease of management, therefore the interest rates of the merged banks will be those of the bank with which they will merge.
The interest rates of the majority of Indian banks are as follows:
Bank of Baroda
Bank of India
Bank of Maharashtra
central bank of india
At the Central Bank of India, interest on deposits above INR 10 lakh is tied to the repo rate.
Overseas Indian Bank
Bank of Punjab and Sindh
National Bank of Punjab
National Bank of India
Private sector bank interest rates
At Axis Bank, interest on deposits of INR 10 crore and more than INR 10 crore is tied to repo rates.
city union bank
The Federal Bank has tied interest on deposits to the repo rate.
IDFC FIRST Bank
Bank of Karnataka
Karur Vysia Bank
Kotak Mahindra Bank
Bank of South India
Commercial Bank of Tamilnad
Frequently Asked Questions (FAQ)
Can a person open two bank accounts?
Yes, with proper documentation one can open any number of bank accounts.
Can NRIs (Non Resident Indians) open bank accounts in India?
Is a basic deposit required to open an account?
Is income from savings accounts taxed?