RBI New Directive on Interest Rates For Savings Accounts Earns more Interest money For Savings Account Holders

After making ATM cash withdrawal free from any Bank, Reserve Bank of India(RBI) has made steps towards changing the interest calculation of Savings Accounts. This new system has really made good change and our savings accounts will earn a better interest on our savings. Usually Banks pay a nominal interest on the balance in Savings Account. This interest rate will be fixed by RBI, hence it applies for all Banks in India. Now currently, savings account interest rate is 4%.

Earlier Banks use to calculate interest on the basis of monthly minimum balance maintained between 10th and the last day of each month. According to the new circular from RBI, issued on April 1, 2010, all Banks have to calculate the interest on a daily basis. This way savings account holders will not lose interest for even one rupee.

Calculation of Interest rate of Savings:
Let us assume that an individual has following balances in the month of June in a year in his Savings Account in a Bank:

According to older system: The interest is calculated on the minimum balance in a month. The minimum balance from 10th to last day of the month (30th) is Rs.1000. Hence the interest of 4% is paid on this amount of Rs.1000. So according to this system, interest for this June month is 3.33 [=1000*0.04*(30/360)].

According to new system: The interest of 4% is paid on daily basis. That means interest on Rs.10000 for 5 days is 5.55 [=10000*0.04*(5/360)] and Rs.6000 for 1 day is 0.666 [=6000*0.04*(1/360)] and the interest for Rs.4000 for 3 days is 1.333 [=4000*0.04*(3/360)]. interest for Rs.1000 for 11days is 1.222, interest for Rs.1000 for 10 days is 1.111. Hence, the interest we get here for the month of June is 9.882 [=5.55+0.666+1.333+1.222+1.111].

Due to the RBI new directive on savings interest rate calculation, we are able to get 4 times more interest earnings. Thus Reserve Bank of India has given a better opportunity for the all bank’s savings holders to get more interest earnings on their savings. Therefore these savings account holders will not lose interest for even one rupee.

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