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How is interest calculated on your savings bank account?
You open a savings bank account with a reputed bank. You
deposit your money with the bank. The bank pays you interest on the money you
deposit with the bank.
Banks used to pay interest on the money you deposit with them
in the savings bank account at 4% a year. Now banks are free to fix the
interest rates on their savings bank account based on liquidity and
profitability.Some reputed banks offer an interest of 6% a year.
How is interest
calculated on your savings bank account?
Banks used to pay interest on the lowest balance you maintain
between the 10th day and the last day of the month in your savings
bank account.
Let us understand this
with a simple example:
Mr Dinesh has a savings bank account with a reputed bank and
has a balance of INR 2 Lakhs for the first 20 days of the month. The bank pays
an interest of 4% a year. He withdraws INR 1.5 Lakhs on the 21st of
the month and has only a balance of INR 50,000 for the remaining 10 days of the
month.
Old method used before
April 1st 2010:
Balance of Mr Dinesh from 1st -20th of
the month – INR 2,00,000
Balance of Mr Dinesh from 21st -30th of
the month – INR 50,000
Bank pays interest on the lowest balance Mr Dinesh maintains
between the 10th day and the last day of the month.
The lowest balance is INR 50,000 on which interest is
calculated.
Interest Formula:
= 4% * __30____ * 50,000 =
INR 165.
365
Mr Dinesh gets INR 165 as interest on the lowest balance in his savings bank account (INR 50,000) between the 10th and the 30th days of the month.
New method used after
April 1st 2010:
Balance of Mr Dinesh from 1st -20th of
the month – INR 2,00,000
Balance of Mr Dinesh from 21st -30th of
the month – INR 50,000
Old method:
If the interest on your savings bank account was calculated
by the old method the bank would pay = INR 165.
New method:
If the interest on your savings bank account was calculated
by the new method the bank would pay = INR 493.
Mr Dinesh
gets an extra amount of INR 493 – INR 165 =
INR 328.
He gets more than 3 times the returns after the bank has
shifted to the newer method of calculation.
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