How is savings bank rate calculated?

Answer 1

There was a change recently in India about the calculation of savings account interest rate.

Earlier Method: The minimum balance maintained in the account between the 10th and the last day of the month (say 30th or 31st) will be taken for the interest computation

New Method: The balance at the end of every day will be taken into account for interest computation.

Let us check this with a real time example:

Mr. X get his salary of Rs. 50,000/- on the 1st - Balance in Account Rs. 50,000/-

Withdraws Rs. 20,000/- for family expenditure on 8th - Balance in Acc Rs. 30,000/-

EMI on Personal loan Rs. 15,000/- deducted on 15th - Balance in Acc Rs. 15,000/-

Withdrawal of Rs. 10,000/- to meet sudden expenses on 25th - Balance in Acc Rs. 5,000/-

Now let us compute the Interest earned in the account by both ways.

As per the Earlier Method:

Amount considered for interest computation = Rs. 5,000/-

Interest earned for the month = Rs. 14.58/-

As per the New Method:

Balance considered for Interest for 7 days = Rs. 50,000/-

Balance considered for Interest for the next 7 days = Rs. 30,000/-

Balance considered for Interest for the next 10 days = Rs. 15,000/-

Balance considered for the last 6 days = Rs. 5,000/-

Total No. of days in the month = 30 days

Interest for first 7 days (Rs. 50,000/-) = Rs. 34.02/-

Interest for next 7 days (Rs. 30,000/-) = Rs. 20.41/-

Interest for next 10 days (Rs. 15,000/-) = Rs. 14.58/-

Interest for the last 6 days (Rs. 5,000/-) = Rs. 2.92/-

Total Interest Earned for the month = Rs. 71.93/-

This is nearly 5 times as that of the interest earned by the old method.