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Tips for Calculating Interest on Savings Account
A savings account is the most common form of an interest-bearing deposit account which is held with a bank or NBFC that provides a nominal interest rate. The average interest rate offered by banks in India is 4% per annum - depending on the daily balance and other parameters. Some banks even offer up to 7% per annum. Banks are free to set their own interest rates on a savings bank account after the RBI deregulated interest rates on savings account. In fact, one of the effects of the government’s demonetization move will be a change in interest rates on deposits.
A lot of people are unaware of how the interest is calculated on their savings bank account. So here goes.
The interest on all savings bank account deposits is calculated on a day-to-day basis, i.e. - on the daily balance. Naturally, the higher the amount in your account, the greater the interest you earn. This enables account holders to earn a higher interest income through their savings compared to the earlier method. Previously, the banks would pay interest on the lowest available balance in the account between the tenth and the last day of a month. Under this method, the interest income was less as compared to the current method of computation.
How to Calculate Interest on Your Savings Bank Account:
There are several online savings account interest calculators that you can use to calculate the interest earned on your savings account. The online savings interest calculators are very easy to use and yield accurate results. Depending on the calculator, all you need to do is:
• Enter the Bank name
• Enter the type of account held with the bank
• Enter the balance amount in your savings account
The calculator will do the rest and present you with a breakup of the interest amount earned.
If you want to try your hand at calculating the interest manually, the following is the formula to calculate interest:
Daily interest = Amount (Daily balance) * Interest / days in the year.
Naturally, the interest amount could change every day, depending on the balance in your account.
5 advantages of using a savings interest calculator:
• It lets you choose the kind of savings account as per your financial needs.
• It is accurate and quick. You do not have to worry about making mistakes in calculating the interest you earn.
• It lets you visualize the interest income earned through your savings ahead of time.
• It lets you calculate the different interest rates offered by different banks and compare the various bank offerings.
• Depending on the interest income, you may choose to switch to another bank for comparatively higher interest income.
Most people do not bother to calculate the interest on a savings bank account. A savings bank account is only viewed as a safe place to store hard-earned money and avail of banking facilities. But since banks are free to set their own interest rates, it would be best to do a comparison by doing a quick calculation using a simple online savings interest calculator to get the best out of your savings.