When you open Savings Account in India, you enjoy the twin benefits of liquidity and security. Being the most common type of Bank Account, it protects your hard-earned savings while generating interest income on the funds you store in it. Hence, you can grow your money by simply keeping it safe in your Savings Account.
Today, you can easily open a Savings Account online instantly and without hassle using the Banking app. However, if you are wondering how banks calculate interest on the money you keep in such an account, the following article can be helpful.
About interest rates
When you open a Savings Account with a bank, your bank pays a certain amount of money regularly as interest. Banks calculate the interest on the amount you maintain in the account, encouraging you to save more.
The concerned bank usually determines the interest rate on Savings Accounts. Hence, it may vary across banks. In addition, your bank may periodically revise the rate based on the RBI’s mandate.
Interest calculation
Per the RBI’s guidelines, banks must calculate the interest on your Savings Account daily. It should be based on the closing balance in the account on that particular day. Although banks calculate the interest daily, they usually credit it to your account yearly, quarterly, or monthly. The formula used for the calculation of the Savings Account interest rate is given as:
Interest = (Daily balance * Number of days * Interest rate) / (Total number of days in the year)
Your Savings Account offers compound interest. The interest you earn on the account also earns an interest as long as you do not withdraw it from the account. Using the above formula, you can easily determine the interest you will make. However, if you want to skip the hassle of calculating the interest amount manually, you can use an online Savings Account interest calculator.
About Savings Account interest calculator
A Savings Account interest calculator enables you to determine the interest you will earn on your Savings Account. To calculate using this tool, just enter some essential information, like average balance, interest rate offered by your bank, etc. The calculator can also help you understand how much you need to save each month to reach a target corpus over a specific period.
Ways to earn more interest
Once you know the process of calculating the interest on Savings Accounts, you might be wondering how to earn more interest. To do so, you can follow these steps:
- Opt for a Savings Bank Account offering a higher interest rate to earn a higher interest on the same funds.
- Check your balance using Internet Banking and maintain a higher average monthly balance.