Effective April saving bank account holders will have a reason to cheer. The Reserve Bank of India (RBI) has asked banks to start calculating interest on savings account on a daily basis, starting April 1.
At present banks compute interest on the lowest available balance in the account, between the 10th and the last date of any month. And the rate of interest on a savings bank account is 3.5 per cent annually. If one withdraws a certain amount from his/her account on the last day of a month, the interest on that amount is lost for the entire month.
Also, a deposit made during this period would not be counted, as higher balance does not play any role in this calculation. This often leads to a position where the interest earned is extremely low, even if an individual maintains a high balance in his savings account.
Therefore, the new daily balance method will yield a better rate of return for individuals. Here's how -
Impact Of Change: Once this norm comes into effect, the balance at the end of each day would be utilised for the calculating the final interest received by the account holder. This is called the daily balance method. The rate of interest, however, remains 3.5 per cent.
For instance, an individual who earns Rs 50,000, which is credited to his account on the first of every month. Assume the existing balance in the account at the start of the month was zero. From the salary received, he withdraws Rs 25,000 for various household expenses on the 5th of the month. So, the available balance on the 10th of the month will be Rs 25,000. Assuming there is no regular payment to the account but a withdrawal of Rs 10,000 is likely on the 20th of the month for some expense that may arise.
According to the present norm of calculating interest for savings account - The balance on the 10th of the month is Rs 25,000. There is a reduction in the account balance by Rs 10,000 by the 20th of the month. Hence, the balance used for calculating interest is Rs 15,000 and the interest for the month will be Rs 44.
By the new daily balance method, there will be a minute look at the changes that have taken place and hence there will be a different method for the calculation. Let's assume a month of 30 days, there will be interest paid on Rs 50,000 for five days (1st to 5th of the month), then on Rs 25,000 for 15 days (5th to the 20th of the month) and lastly, on Rs 15,000 for 10 days (20th to the 30th of the month). Therefore, the total interest earned on various available balances will amount to Rs 75, higher than what is earned as per the present norm.
