Savings Account Interest Rates

Calculated On Daily Balance

Every person, who earns money through a business or profession, has the habit to save some amount of it. At times, people prefer to go along with fixed deposits to save their hard earned money. However, these savings instruments lock in the money for a particular period of time. So, people, who prefer liquid cash, keep their money deposited in bank account.

A savings account is one of the different types of account offered by banks around the world for depositing cash. The deposited cash earns interest according to the payment cycled decided upon by the bank. Several banks provide these accounts with a compulsory requirement of maintaining a minimum balance. In India, before the de-regulation of interest rates by Reserve Bank of India, every savings account interest rates were uniform and fixed at 4% per annum. As a result, banks did not enjoy any privilege of providing different schemes or attractive facilities using them. However, RBI brought reforms in 2011 and eliminated this uniformity of interest rates.

After the 2011 reforms, banks earned the liberty of deciding the interest rates. Any individual bank can now alter the interest rates based on its liquidity of cash and profitability for the year. Further, the application of interest rate equation changed in accordance with the new reforms. Before the reforms, a flat rate of 4% per annum was levied on the minimum or lowest balance maintained between the tenth day and the last day of the month. Despite of maintaining high amount of balance on other days, the interest would be calculated only on the minimum or lowest balance maintained on any particular day of the month. As a result, the account holders did not earn fair benefit of gaining interests, irrespective of maintaining substantial amounts of funds in the account.

To overcome this unfriendly method of interest calculations, RBI came with the new reforms. After April 2010, the interest rate calculated on savings account deposit is calculated on daily basis. The traditional cycle of performing calculations based on the particular period has been revoked, and daily calculations are applied on the balance maintained at the end of the day. According to this new policy, even if you maintain low balance on any particular day, still the interest accrued on your deposits will not get affected. For instance, if a particular bank like Yes Bank provides 6% interest rate per annum on all its savings account, then it will apply the same rate on the balance maintained every day.

Even though you will earn the interest at the end of the month or on quarterly basis, still the calculation is done on daily basis. Despite of maintaining variable balance, this interest accrual process is simplified by application of daily interest calculation methods. As a result, savings account holders can earn more interest, which they lost due to the previous method. This de-regulation of interest rates has compelled several banks to offer attractive schemes. As a result, many individuals are now earning extra benefits on their saved money due to this de-regulation.