Wednesday, February 10, 2010

Savings Account - Change in Interest Calculation

Savings account is something, which is almost there for 95% of the citizen and its more than one account in different banks, so think of the number of savings account in India. Well that drags us to large number, and we shall talk about that in different post. Lets target on the method banks use to calculate the interest paid out for our savings account.

There is actually a change in the way interest is calculated, and the bill was passed by RBI last year around march '09, to be effective from apr '10. You may wonder why there was 1year time given to implement this change, well RBI has given banks sufficient time to upgrade their software with the new calculation. Atleast lets be happy that RBI has decided to help customers.

Current Calculation(till march 2010): Interest paid monthly for the minimum amount in your account between 10th and last day of the month(30 or 31). Total interest is paid either quarterly or halfyearly.

New Calculation(from april 2010): Interest paid daily for the minimum amount available on that particular day. Total interest will still be paid quarterly or halfyearly.

Simple Example

Opening balance = Rs 32,000

Deposit on 13th = Rs 25,000

New Balance = Rs 57,000

Interest (old method) = Rs 93 (3.5 per cent of Rs 32,000)

Interest (new method) = Rs 132

Actually this is the case for all these decades and banks are almost fooling us with this surplus amount. With current method of calculation, banks get surplus funds(zero-cost funds) and use them to lend it to us. Also notice banks give us simple interest and when they lend they charge compound interest, so do not have excess money in savings account, invest wisely. RBI is well aware of these funds, but they recently changed the way savings account interest has to be calculated. It will take effect from April 2010.

Enjoy more interest on your savings account.


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