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We all have at least one savings bank account, isn’t it? And, we all know the fact that a savings account offers the Interest on the deposit/s we make. Now, let’s change the question to How many of us actually know the way interest is calculated and credited to the account? Not too many, right? When it comes to a savings account, it not only offers a safe place to keep your hard earned money, in fact, it also gives easy and quick access to the cash. But apart from safety and liquidity, a savings bank account offers the Interest on the deposit you make. Currently, many banks in the country offer the interest in the range of 3.50%-4% to the savings account holders and which can be paid monthly, annually or quarterly by the banks.
But do you know how this whole mechanism works with respect to maintaining a minimum average balance in the account?
Well, if not, we are here to help. According to RBI rules, the interest on a savings account is calculated on the daily basis and will be a uniform interest rate on balance of up to ₹1 Lakh irrespective of the amount in the account within this limit. Plus, the banks may offer differential interest rates on balance above ₹1 Lakh. In short, there is a specific rate for up to ₹1 Lakh, while a different rate for balance between ₹1 Lakh and ₹50 Lakh or ₹1 Crore.
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Savings Account Interest Rate at Top Banks
Have a look at the table below showing the savings bank account interest rates at different banks and along with minimum account balance for different banks. With the help of the below details, you can check which bank offers highest interest rate on savings account.
|Banks||Interest on Savings Account ( per annum)||Savings Account Minimum Balance|
|State Bank of India (SBI)||3.50%-4%||₹1,000/2,000/3,000/5,000|
|Punjab National Bank (PNB)||3.50%-4%||₹500/1,000|
|Kotak Mahindra Bank||5%-6%||₹5,000|
|Standard Chartered Bank||3.50%-4%||Nil|
Savings Account Limit
As a savings bank account holder, one needs to keep an eye on the savings account minimum balance required by the banks as many lenders insist on the same. As you can clearly see, the table above is showing that some banks have a low limit of Nil or ₹500 while some may have ₹10,000. If the average is not maintained at the end of a particular period, there could be a penalty for the same. So, to avoid such penalty one should always keep in mind the minimum balance requirement and should also know how it is calculated.
Monthly Average Balance Calculation for Savings Bank Account
Take a look below to know how your monthly average balance for a savings account gets calculated by the banks.
Suppose, a bank asks you to maintain a monthly average balance of ₹5,000 for the month of October.
On 1st October, the balance in the account was ₹4,000
On 12th October, the withdrawal of ₹3,000 took place
On 18th October, ₹9,000 was deposited in the account
So, your MAB calculation for the month of October will be:
From 1st October to 12th October, i.e. 11 days, total balance in the account was (4,000×11)=₹44,000
From 12th October to 18th October,i.e.6 days, total balance in the account was (1,000×6)=₹6,000
From 18th October to 31st October, i.e. 13 days, the total balance in the account was (10,000×13)=₹1.3 Lakh
So, the total balance comes out to be ₹1.8 Lakh and the average of 31 days will be ₹5,806, which is above the required limit set by the bank, hence no penalty will be levied. However, to calculate the Interest on a savings accounts on a daily balance, below is the formula used by the banks.
Interest = Amount (daily balance)*(No. of days)* Interest/Days in the year
In a nutshell, it is important to know the minimum account balance requirement so that one can keep the idle funds in the savings account for the emergency needs. But, if you want your liquid money to earn more, start investing the rest in other high yield investment instruments.
PS: Just to give you a sneak peek, since October 2011 most of the banks were offering the 4% interest on savings accounts. But recently various key lenders have slashed their interest rates on savings bank account due to weak credit offtake, fall in the inflation rate and surplus money because of demonetization.