How to Calculate Savings Account Interest Rate?

Posted on Monday, December 12th, 2022 | By IndusInd Bank

In today’s new-age world, nobody wants to settle for anything less than everything.  Earning individuals are looking for a secure way to park their funds, with both, ease of access and interest on their money. This is where savings accounts come into play. A savings account offers cash withdrawal, online payment and transactions, payment via cheque & debit card, and much more – all while you are earning interest on the money in your account.

Also Read: Nominal vs. Effective Interest Rates in Savings Accounts

How is the savings account interest rate calculated?

Savings bank account interest rate is calculated on a daily basis in accordance with the Reserve Bank of India directives. The interest rate is based on the daily maintained closing balance in your savings account. The rate of interest on savings account earned by each customer varies basis the actual balance maintained in the account, and the rate offered by the selected bank. At IndusInd Bank, we offer attractive interest rates on our best-in-class savings accounts.

Savings interest rate calculation explained

Rohit opened a savings account with his bank at an interest rate of 4 per cent, and deposited Rs. 1,00,000. Rohit earns interest on the closing balance in the savings account at the end of each day. After 15 days, he withdrew Rs. 20,000. A week later, he deposited Rs. 15,000 in his account. He made no further transactions for the rest of the month.

Let us tabulate the data to see the closing balance in Rohit’s savings account for a period of 30 days.

From Day 1 to Day 14, Rohit’s closing balance was Rs. 1,00,000. From Day 15 to Day 21 – for a period of 7 days – his closing balance was Rs. 80,000. From there on, his closing balance was Rs. 95,000. Let us now calculate the interest earned on savings account by Rohit using the formula:

Interest on savings account = Daily balance x Rate of interest x (No. of days/365)

Factors affecting Interest Rate on Savings Account

• Central Bank Policy: Banks increase interest rates whenever the RBI raises its repo rate and vice versa. 

• Account Balance: Banks offer different interest rates for different balance slabs. 

• Inflation: Regulators and banks increase interest rates during inflation to maintain the value of money. 

• Market Competition: Banks tend to offer competitive interest rates to attract customers. 

When is the Interest Amount Credited?

The interest amount on a savings account is either credited quarterly, or on a half-yearly basis. The RBI directives encourage the banks to credit the interest amount at the end of every quarter so as to incentivize the general public in investing. At IndusInd Bank, the interest is paid in March, June, September, and December.

Also Read: 5 Factors That Can Affect Your Savings Account

How to Maximise Interest on Your Savings Account?

There are multiple ways to maximise interest on your savings account balance. Here are some options: 

• Use Auto Sweep Facility: This facility allows you to maximise returns on your idle funds. It automatically transfers excess funds to a linked FD to ensure you earn high returns. 

• Maintain High Account Balance: Banks usually offer tiered interest rates. So if your account has a higher balance, you might earn higher rates.  

• Take Advantage of Compound Interest: You can earn interest on the interest earned on your savings. This is called compound interest. 

Conclusion

A Savings Account is one of the most reliable banking products. It offers a safe way to park your funds, earn regular interest and easily access the money for transactions. IndusInd Bank Savings Accounts also offer seamless and secure fund transfer options such as UPI & Net banking. Enjoy special value-added services and benefits such as cashbacks, discounts, rewards on shopping and save more!

FAQs

Is the interest earned on a savings account taxable?

Yes. Interest earned on a savings account is subject to taxes as per your applicable income tax slab rates.

Does maintaining a higher daily balance help me earn more interest?

Yes. Many banks calculate savings account interest based on the daily closing balance.

Can the savings account interest rate change over time?

Yes. Because savings account interest rates are influenced by multiple factors, including central bank policies, inflation, market conditions, etc.