How is interest on saving bank account is calculated ?

POSTED BY manish ON October 8, 2012 COMMENTS (162)

A lot of people do not know interest is calculated on their savings bank account.In this article I will explain all the aspects of interest on a savings bank account. Earlier all the banks had the same interest on their saving bank accounts, which was 4% , so a person had no choice in terms of interest rate, you would have got the same return with any bank. But, RBI has recently de-regulated interest on saving bank account and now banks can decide the interest they want to pay on saving bank. This has had a positive impact for customers, because now due to competition, banks like Kotak Bank and Yes Bank have started offering higher interest rates like 6% or 7% and using that parameter to attract lot of customers.

How is interest on saving bank is Calculated ?

Coming to the main question, the procedure to calculate saving bank interest, we will first see how it was done earlier and then we will see how its done now.

Old Method

Earlier, Banks used to pay 3.5% interest on the minimum balance between 10th and last day of the month. This was not a very customer friendly method because if you kept Rs 5,00,000 in your saving account for the whole month and on 26th, & let’s say you take out 4,90,000. You would have got interest only on Rs 10,000 @3.5% , which is just Rs 28.

New Method

Now a new method is used to calculate the interest on saving bank account which is very fair.  From April 1, 2010 , as per the RBI circular on new guidelines on saving bank interest calculation; this is the rule for interest calculation.

“The interest has to be calculated on daily basis for the closing day balance” – It’s that simple. So let’s say the interest rate is 4% , then you will get interest @4% on daily basis for your closing balance and it will get accumulated , but it will be paid back to your account only after 3 or 6 months. While RBI wants all the banks to pay the interest every quarter, each bank has its own criteria , like ICICI Bank pays it twice a year right now in Sept and March.

So now, if you see the same example we discussed above, with the new method of interest calculation, the interest will be 4% on 5 lacs (Rs 1,369) for 25 days (from start of month to 25th) and on 10,000 for next 5 days (Rs 5) (26th – 30th) . So the interest would be total Rs 1,374 . In the old method it was just Rs 28 . Can you see the gigantic difference?

Saving Bank Interest Calculation

High Interest on Saving bank from some banks

You must have seen some banks are now offering 6-7% of interest rate and they have dual interest rates, like 5.5% below 1 lac and 6% above 6% (in case of Kotak Bank) , which means that you will be getting 5.5% on the amount below 1 lac and only on the difference amount above 1 lac, you will get 6% interest . So if you have a balance of Rs 1,50,000 in your bank (lets say kotak bank) , you will get 5.5% on 1,00,000 and 6% on 50,000 .

You should be more interested in interest below 1 lac

If you see the average amount kept in saving bank account , it should not cross 1 lac for most of the people . While there are people who park their money in saving bank account for some time, but it does not happening with most people. So if some bank is giving higher interest for amounts above 1 lac, that’s a secondary benefit for you, not the basis of selection of bank. Because if you are anyways ready to keep a balance of more than 1 lac, why not just create a short term deposit online,which can be broken anyways or just activate your sweep in account option, so that an amount above a target amount automatically gets converted to FD and earn more money.

Do you now understand how interest on saving bank account is calculated? Will it help you manage your bank money in a better way?

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162 replies on this article “How is interest on saving bank account is calculated ?”

  1. Kumar says:

    Just landed from Google and found this post is 6 years old but helpful. Thanks And i appreciate your job

    1. Jagoinvestor Admin says:

      Hey Kumar

      Glad to know that you liked the article.

      Please share it on your social media profile so that it can reach more and more people !

      Manish

  2. usha says:

    Hi i have one question i have deposit 10 000 in one day .didn’t withdrawal the money for this month.next month frst they ll initiate the 4%interest for one month ?

    1. No , 4% is the yearly interest. You get it calculated on daily basis

  3. sagar says:

    hi,
    i have 30000 as minimum balance maintaining in my sbi account.few days back i got 380 rupees as interest in my account.as per rate i should paid with 1440 rs per anum but they credites 380 rupees and this is the second time credit.so totally i have got only 760 rs till date,what about reamaining money.
    please explain sir,…

    1. Did you calculate on the daily basis ? I am sure the bank must have done the correct calculation ..

      Check with them

      Manish

  4. arun says:

    Hi,
    I have a doubt , i deposit every month 10000 , this is 4th month , i did not get any interest in sbi
    when they will credit interest…
    i am remaining the same 30000 in my ac…
    can u tell when will they credit interest amount ?

    1. Many banks credit it on 6 monthly basis also !

      1. Yogesh says:

        SBI and many other branches pay intrest nowdays 3-4 times a year…I guess 6 months havae been reduced to 3- 4 months not sure…But pretty sure that it’s not 6 months nowdays

        1. It can be 3 months also, not 6 months always !

  5. bijay says:

    Dear Mr Manish,
    I am about to develop my land into building via builder, the builder agreed to pay 40 lacs into my account as per joint venture agreement. If I’ll be keeping the same amount as main balance in my sbi account how much I’ll be getting interest from Bank and how to pay income tax on the same. Kindly explain the same in simple words.

    1. Hi bijay

      This query belongs to CA domain, hence we are not the right people to comment on this issue.

      I suggest you get in touch with a CA for this in your city.

      We also have a CA partner incase you want to explore that, Just fill in your details here and they will give you a complimentary call back

      https://www.jagoinvestor.com/solutions/ca-services

      Manish

  6. Rajat says:

    How is end of day calculated? What if I use the money all day, and transfer it to the bank at 3.30 PM everyday and withdraw it back at 9.30 AM every morning. Will I earn 6% interest on my money?

    1. Not sure, but it would be END OF DAY , which is 12:00 at night !

  7. Kartik says:

    Hi Manish,

    If I keep 1 lakh amount for six months continuously and then at the 6th month if the interest calculated (2000RS). Then this interest amount will be considered as principle for the next half year interest calculation?

    1. Only if its credited in your account. If its not, then it will be not !

  8. grv says:

    Hi Manish,
    If a company pay salary after deducting income tax to his employee.And If employee keeps salary to his saving account then will employee have to pay tax on it?

    1. Not again … but any interest which he earns , on that amount he has to 🙂

  9. Khushboo says:

    If i have to pay my emi 2000 for a year then how much money i have to deposit which is use for my emi and my principle remain the same

    1. Hi Khushboo

      I am not clear on what is your question. Please repeat it with more clarity

      Manish

    2. KranthiKumarM says:

      HI Khushboo.. You need to keep Rs. 6,08,333 @ 4%. Then you will get interest of Rs. 2,000 per month. Formula is Interest*365*100/ ( (No. of days)* (Rate of interest) ).

  10. AnkitMohanLal says:

    what will be interest for 3 month on these transactions –
    SerialNo Transaction Date Particular Narration Debit Credit Balance
    12 03-Apr-2016 Transaction INTEREST 0.00 11.36 1164.00
    13 31-Mar-2016 Cash WithDrawal SMS Charge 10.00 0.00 1143.00
    14 03-May-2016 Cash Deposit ORC-MARCH-2016 0.00 576.00 1730.00
    15 13-May-2016 Cash WithDrawal CSWD 1000.00 0.00 730.00
    16 13-May-2016 Cash Deposit SPOT 0.00 360.00 1090.00
    17 18-May-2016 Cash Deposit CSHD 0.00 900.00 1990.00
    18 23-May-2016 Cash WithDrawal CSWD 500.00 0.00 1490.00
    19 27-May-2016 Cash Deposit CSHD 0.00 414.00 1904.00
    20 27-May-2016 Cash Deposit INCENTIVE-APL-2016 0.00 1532.00 3436.00
    21 06-Jun-2016 Cash Deposit CSHD 0.00 700.00 4136.00
    22 08-Jun-2016 Cash Deposit CSHD 0.00 650.00 4786.00
    23 18-Jun-2016 Cash Deposit INCENTIVE-MAY-2016 0.00 760.00 5546.00
    24 21-Jun-2016 Cash Deposit CSHD 0.00 220.00 5766.00

  11. Narasimha says:

    hi Manish if I am having 10000/- in my acc and I draw 2000 one day& 4000 another day.2000 etc.,, before 25th of the month .then how the interest can be caluculated on daily basis

    1. Just use the same method . Each day see the balance at the end of the day and calculate 4% interest on that. Keep adding that each day for 30 days .

      1. Narasimha says:

        Thank you Manish

  12. Rahul says:

    If I deposits 7lakh in my saving account then what interest I ll get after a month and will be my deposited amount is tax free

    1. It will be 4% annum calculated per day , Hence 30*700000*4%/365 = Rs 2301

      Upto Rs 10,000 per year is exempted from tax if its coming from saving bank account interest !

      1. Rahul says:

        Thank you

  13. Arvind says:

    How can I get amount on 25th day of month
    Example
    In my account balance have like this
    5th of month – 50000
    10th – 60000
    20th – 15000
    25th – 200000
    Now how can I calculate interst.

    1. Thats explained in the article, Calculate the interest for each day balance and add it up !

  14. kifayat says:

    i deposited 3 lac on 15/04/2016 and withdrew on 26/05/2016 but did not receive any interest from the bank, why.

    1. Its credited on quarterly basis . it will come later in ur accout

    2. Rittika says:

      You did not get interest because you did not submit your 3 lac within the 10th of the month….. Had you submitted the money within the 10th.. Your intetest would have been calculated . This is rules of banking .

  15. Jay patel says:

    If I want to deposit 10,000 in fixed deposit for a year. How much interest would I get??

  16. Bende says:

    Thank you very much…I was looking for this info

    1. Glad to know that Bende ..

  17. SunilJoshi says:

    yeah , this information is useful to me. thanks a lot. . .

  18. Hitesh says:

    Thank You for this valuable information.

  19. Gurpreet says:

    HI,

    TELL ME PLS HOW MUCH AMOUNT IS TAX FREE IN SAVING ACCOUNT

    1. Interest of upto 10k per year

  20. Anil says:

    I want to deposit 1 lac rs. Per year regular 5yrs. For 10-15 yrs how much get rs after 10-15 yrs plz suggest me

  21. Lokesh says:

    I have a Kotak account and if they are offering an interest of 5.5% to 6% on Savings, but 4% on a Term Deposit of 15 days or less, then does it make sense to keep my funds in Savings instead of using Term Deposit? Does the mode of interest calculation impact the returns or the Interest Calculation method is same across Savings and Term Deposits? Thanks a lot for the wonderful article.

    1. You can put it in saving bank account. The intertest calculation happens in same manner

      1. Lokesh says:

        Thanks a lot.

  22. Deys says:

    Hi
    I work in abroad and sent 10 lakhs in my indian account!! Is my money taxable or its tax free as its from foriegn country

    1. It would be tax free

  23. Aravind says:

    Hi Manish,

    Small query. Forget about the interest %. How is the AQB calculated.? Let us say that Rs. 1000 is the minimum balance to be maintained. For a quarter it is 90 days. So, will it be OK if I maintain 90K-1Lac for a day and zero balance for the rest 89 days.?

    Hope I didn’t confuse you.

    1. Yes, its totally fine.

  24. ganesh says:

    As you said the interest would be calculated in daily basis just consider the following scenario,suppose i deposit 10lakhs every day just before the closing time and transfer the amount after 2 hrs let say then my interest will be calculated for 10 lakhs right?or how will it be calculated?

    1. Yes, it would be calculated for 10 lacs only ..

      It would be 10 lacs * 4%/365 = 109.5

      1. KUNAL says:

        Hi,
        Is 23:59 the closing time for all banks?? If no, can you please tell me what is the closing time set by RBI?

        1. I have no idea on that !

  25. Rajat says:

    Does the same method apply to NRE savings accounts also?

  26. rahulganthade says:

    Sir, I want to ask u that I have made Time deposits of 500000 for tenure of 3 months on auto renewal basis from which i m getting 7.5% interest. I fall under 20% I.T slab. So,what would u suggest me to keep that time deposit or keep the amount in saving account and enjoy 4% ROI. Please explain.

  27. Sen says:

    I have a doubt on the amount to be considered for interest amount paid by banks. Since the bank pays interest amount halfyearly in my case and it over laps more than a FY. in that case how to do you calculate the exact amount of interest paid for that FY. For eg: int pd from 30.12.13 to 29.06.14 = Rs x amt ( FY ends on Apr but interest paid is upto June

    1. Why do you need it for 7 months only ? You need to pay tax on yearly basis right ?

      1. Sen says:

        May be I shall rephrase the statement with an example, interest is paid by the bank on halfyearly basis lets assume the interest paid for following periods and amount paid. 1) 30.12.14 to 29.06.15 ; Amount paid Rs 7000/- and 2) 30.06.15 to 30.12.16 ; Amount Paid Rs 8000/- In this case please do let me know the amount to be conisdered / calculated as interest paid for FY 14-15 & FY 15-16.

        1. What matters is that in which year you got it. In your exmaple it came in financial year 2015-2016 . SO the whole amount will be considered

  28. frances says:

    I have a balance of 7 lakhs in savings account. Is my interest taxable? I don’t have a PAN card yet

    1. Yes, your interest is taxable above 10k interest

  29. siddharth vachhani says:

    Respected
    Sir,
    I will become aware about how bank intrest calculated monthly or yearly and by which formula.
    Please sir.
    Thank’s.

    1. Whats the question ?

  30. meharwalzs says:

    Hi
    Can you tell me the frequency of payment of interest on savings account and term deposits by different banks and can that be a criteria as to where one should park money.

    1. It depends . Some banks pay half yearly and some pay quarterly !

  31. Gopal says:

    Sir, could you please help us explain how will this interest be calculated in a Leap financial year, say 2015-16 (29-Feb-2016 falling in this year)… Will the denominator be considered as standard 365 or will it have to be 366, as the actual no. of days in the financial year… Thanks

    1. It should be 366 in that case

  32. suman says:

    Please tell me how the interest rate on RD(recurring deposits) is calculated? and give an easy formula, if possible.

    1. Its calculated on quarterly or monthly basis like a simple interest and added to the amount back or given back as opted by customer

  33. deepak says:

    7% interest is gr8 if u r a daily share trader…………

    i mean earn 7 % from bank + earn profits from daily trading.
    if u manage a nominal profit % of arnd 7 % through stock trading den total interest earned will b 15-25 %……….

    now 15 % is a hell lot of interest ………..if u invest 5000 a month and earn 15 % compounded interest u can make arnd 80 lacs to 1.2 crore in 20 years. how about that

    1. It only looks great on paper .. reality is very different !

  34. harkesh kumar says:

    hi, I am harkesh kumar and my A/c in yes bank, I want to know that which month that yes bank provide us interest in a one year. (please discribe the month in year.)

    1. Its not fixed. Depends on the bank .. check it with your bank itself !

  35. Gobinda Das says:

    I couldn’t understand the method of calculating the interests of savings bank accounts. You are telling that the rate of interest is 4%. Then how the interest of Rs. 5,00,000/- becomes Rs. 1,369/- although in daily basis?

    1. Anand says:

      This is only for 25 days.
      I=PNR/100 where P=500000;N=25/365;R=4

      Is it clear now?

    2. Its clearly explained in the image table itself . Note that its calculated for days , not full year !

  36. Mahesh says:

    Hi Manish,

    Thanks, Now i am clarified , Actually this time I read it more carefully

    Apologies, for wasting your time…

  37. Mahesh says:

    Hi,

    Just need to ask you one question that if balance in saving account changes persistently then how they calculate interest rate . Could you please explain ?

    Thanks,

    1. It is calculated on daily basis. Seems like you did not read the article itself .

  38. Sachin says:

    could anybody share per day interest rate calculator which is used for calculating interests in Indian bank accounts?

    1. Sachin

      I dont think there is any ready made calculator like that, but you can create it in excel easily !

  39. MANU says:

    sir i want to know about intrest to my money …in my account having 500000@4%.how much intrest are getting monthly please caluculate and send me sir its very important

    1. It will be close to 1666

  40. Tariq Anwar says:

    Very informative article. Thanks http://www.jagoinvestor.com

  41. harpreet says:

    i have leased my premises to bank for 20000/- p.m after 3 years the rent was to be increased 10% . but bank continued to pay me same 20000/-p.m instead of 22000/- now 36 months have passed what amount should i claim from the bank as per rbi guidlines

    1. There is nothing like regulations here . You have to move as per your agreement . If its mentioned in agreement that 10% increase should be there, then bank has to pay increased rent to you. File a case on them !

  42. arun kumar says:

    Sir,
    Is the exemption limit for tax on interest upto Rs. 10,000/- applicable for savings bank account or for fixed deposits or recurring deposits also? I come under the purview of 20% slab. My interest from fixed deposits is more than Rs. 10,000/-. I prefer to pay tax on interest through govt.Challan. In this context, I submit form 15G to the bank. Is it appropriate? I have to calculate tax on interest @ 20% only or plus educational cess whatever? My annual interest from bank deposits is Rs. 20,000/-.For how much amount I have to pay the tax. You are requested to kindly guide me.
    With regards
    arun kumar

    1. the exemption is only on saving bank interest, if your interest from saving bank is less than 10k , just ignore that part then

      However for bank deposits and recurring deposits ,you need to pay the tax as per your slab rate . Note that form 15G has to be submitted in the start of the year, not now !

      1. arun kumar says:

        Thanks!

  43. Shilpi Nigam says:

    Hi Manish,
    I just discovered your blog yesterday and I stayed up late in night just reading all the articles you have put up. I used to feel very helpless when it came to queries about financial matters and hence was always apprehensive of taking any steps towards building my wealth or taking up a loan. There are so many catches in each scheme or area one wants to invest in and one is always in for surprises, mostly unpleasant ones.
    It is very liberating to have discovered your amazingly informative website. It has become my favourite website over last 2 days and I already feel more confident about things now.

    Knowledge is power and thanks a lot for saring your knowledge with us 🙂

    1. Thanks for sharing that Shilpi

      I am glad you are liked the blog and found it . Spend more time on this website and you will see there is so much to learn especially from other people comments in comments section . Dont forget to check our forum http://www.jagoinvestor.com/forum/

  44. Harish says:

    I may be asking a very basic question but I am sure many of us are aware –
    when we say that bank pays Interest of the closing day balance or End of day account balance ..what does the cut off timing for calcutaing the closing day balance or End of day account balance (EOD/AB). I checked by calling customer care of few banks and surprisingly each has a different answer – which I think should not be the case –
    Bank 1 – Cut off timing is 8 p.m .After that any debit or credit transcation will not be considered for calulating the EOD/AB.
    Bank 2 – Cut off timing is 12 midnight.
    Bank 3 – Cut off timing doesnot matter . The lowest balance after all transcations in the day will be considered for calculating the daily interest ..i.e independent of the EOD balance. E.g Day’s opening balance 20000 INR, then a debit of Rs 50000,and then a credit of Rs 10000 ..so in a normal calcualtion EOD AB is 25 K (20-5+10) but they will take EOD AB as 15 K as that is the lowest balance the account has hit during the day when 5K was debited.
    Now I want to Understand what is the realty ?????? How actually EOD AB decided ? What is the cut off timing , if any ?

  45. Anisley says:

    Thanks for such a wonderful information I am looking forward to read your informative post.

  46. Mahesh Deshmukh says:

    Hi Manish,

    you are doing a very nice job. Really great article.
    I have read out your all articles and those are really great.
    Wish you all the best.

  47. Rupanjali says:

    Thanks Manish…. This has always been a confusion for many… the Old method was known… but hardly anyone, including me, didn’t know the change in calculation as per the RBI guideline… great Job…

    Now, I know.. any basic financial question… answer would surely be on ur site!! keep up the gr8 work!!

  48. Venki says:

    I appreciate you, Manish, good article. Its been three months waiting for the same article. I have the following points to note, may be helpful to readers

    1. You have suggested sweep-in AC, isn’t an FD which entitles tax? For those in 30% bracket effective interest rate comes around 5.6%. That is why few banks are smart here, it doesn’t matter whether FD or keeping liquid cash in SB, both yield same interest. In the current fiscal, we can get tax exemption max of Rs.10000/- on SB interest (there is no such facility on FD). Perhaps the SB is more comfortable and effective (10 K benefit).

    2. Liquid/Debt/FMP funds and SB are advisable for contingency fund (distribute across all). We will get the benefit of indexation. For those trading or short term investment in equities, SB will be good option to park their money.

    3. For all MF SIPs, monthly bills, Home loan EMI, etc. I am using Yes bank. I will credit required balance for three months, and I won’t touch that amount. It is quite useful, and getting comparatively better interest on the balance. Monthly avg balance required is 10 K, so, if I keep 1 lac for 9 days, no need to worry about min balance for three months. They don’t have any charges on SIP, ECS, etc…, so far.

    4. Kotak credits SB interest once in 3 months. SBI, HDFC are paying twice an year.

    1. venki

      1. Yes ,at the end you have to look at the final yield and decide if it makes sense of not

      2. Yes

      3. Thats a great idea actually .

      4. Thanks for that info . I thought all banks are doing it twice a year !

      1. S Rangan says:

        >> 4. Kotak credits SB interest once in 3 months. SBI, HDFC are paying twice an year.

        Which means, your money compounds twice as fast with Kotak and at the end of the year, one can expect more in the Kotak savings account compared to another bank that offers the same interest rate but deposits the interest only twice a year. Yippee!

        1. Yea , that point makes sense !

  49. Avni Khanna says:

    Hi Manish,
    I require an advice. I am the only earning member of my family. I am living with my old parents. I have set aside a amount of 1.5 lakhs as emergency medical funds in a saving bank account in HDFC bank. I get about 4% interest for that. Should I opt fro YES Bank Saving account which gives me 7% interest. Or Is there any other financial instrument which will provide me same interest rate and keep my funds in liquid state.

    Thanks,
    Avni

    1. Yes you can do that, but I would suggest why not create a online fixed deposit for 1.2 lacs , that way you can get 7-8% interest and it will be breakable in few hours itself !

      1. shobha says:

        Hi,

        In HDFC Bank, the FD can be broken and money is credited immediatly. Also there is no Penalty on early breakage unlike Axis/ICICI etc. Bank. (I hold an HDFC Ac and have been regularly doing short term FD for my Emergency Fund)

        Regards
        Shobha

        1. Thansk for sharing that Shobha !

  50. Elbis says:

    Very informative article!!

    I’ve a question: at what time is the closing day balance calculated? Evening/12am??

    1. It should be end of the day – 12 am night

  51. Sridhar says:

    Wonderful article!. This clearly shows how banks have been using people’s funds and paying paltry interest amount. This enabled them to make huge profits while customers got interest worth peanuts.
    Its a real shock to also know that the differential interest is only for the amount above the cut off (Rs.1 lakh). I was under the impression that the whole amount (if above Rs.1 lakh) is eligible for the higher interest. In any case I’m not worried because I havent opened any account at these banks (with special offer).
    However this is truly an Eye Opener for people who want to shift their bank account. Its safer and smarter to be with larger banks who have sufficient points of service (branches, ATMs, etc).

    1. Sridhar

      Also note that the above 1 lac rules is still debatable as some people on this blog are claiming that they get it for full amount and some say they get it for full amount .

      1. Sridhar says:

        Thanks Manish for clarifying. Looks like the additional interest calculation differs from bank to bank.
        I personally feel its not a wise idea to shift the bank account just for the sake of interest. Probably you will gain a few hundred rupees but what about services, ATMs, branches, access to facilities, etc. If these are not easily accessible the time, effort and costs will add up and negate gains. This is one point people have to consider….just a personal opinion I wanted to share….in some cases benefits could be more.

        1. Yes , I agree with you on that

  52. Ram Mohan says:

    nice article as usual

  53. Vijay says:

    Great!! good posts and decent discussions. I want to contribute articles like this. Manish, let me know if you are accepting articles from outsiders.

    1. Definately .. if you can write something which is useful knowledge for all , not for self promotion and some thing different from what is already written in this blog, then we accept it

  54. Sachin says:

    Thanks Manish. Good info.

  55. VISHAL SHUKLA says:

    thanks for such a nice info.. I want your expert opinion on “liquid fund”. Is this same formula used for liquid funds? as I think most of liquid fund gives returns around 9% PA. How they calculate intrest on this? If my question is out of track for this article then kindly give another article for comparison between liquid fund and saving bank account for ideal money.

    1. Its not the interest which is paid , they invest in other instruments which offer coupon rates , you should not expect more than 7% on them .

      1. viral says:

        since last year liquid funds have generated returns of more than 8% and Relaince Mutual fund is offering option to have debit card also to withdraw fund from any ATM though fund from Reliance is not top performing but still it is better than savings bank account at the same time no compromises at liquidity front too.
        when interest rate starts coming down liquid funds also give less return but than all other banks are also supposed to lower their savings bank account’s interest rate too.
        mutual fund AMCs are planning to adopt initiative like reliance. So hope for good change

        1. Thanks for that comment

  56. sahil says:

    Hello Manish,
    The article seems to very informative,
    My few queries got clarified with your calculation,
    As what i see (I might be wrong) banks whose min bal is less gives less ROI but banks like Kotak which min bal is 10k can give ROI of 6%.
    Banks like Union Banks min balance 1000 give 4%
    Is it true?

  57. varsha says:

    very useful information!!

  58. vijay singhal says:

    Useful Article..

  59. praveen says:

    Thanks Manish for sharing the details. As always simple and enlightening 🙂
    I noticed that Citi bank credits the interest in every six months, which is Apr – sep for the current cycle.

    I have question for Auto sweep, If it is enabled in-case of online transactions money will be reverse sweep to Saving account in SBI?

    1. Its a general practice to give the interest in every 6 months . I am not very clear about the online transaction and the reverse sweep part ! , you might want to ask it on our forum – https://www.jagoinvestor.com/forum/

    2. Vaibhav says:

      Hi Praveen,
      It works according to one time standing instructions. There is no change in transactions part or frontline operations for a user. It happens as simple as your saving a/c works under normal circumstanes.

      1. praveen says:

        Thanks Vaibhav.
        Are you saying that if there is no sufficient balance in the SB at the time of online transaction say bill payments, then it goes successful as if under normal circumstances ?

        1. Vaibhav says:

          Pravin
          If money in SB goes above threshold limit, it will be auto sweep to FD. Similarly if money in SB is suppose to go below threshold limit due to a transaction (ATM withdrawal/online transaction/bill pay/etc..), FD will reverse sweep automatically to SB.
          In simple words, all the money in SB+Auto sweep a/c will be available all the time for withdrawal, as if it is in normal saving a/c. Only difference is you will get better interest.

          Thanks
          Vaibhav.

          1. praveen says:

            Thanks Vaibhav for well clarification 🙂

            _________________________
            I added cool smileys to this message…

  60. Manish says:

    Hi Manish,
    I’ve notice that icici bank pays interest on saving banks afteer 6 months. In tht case does the liable to pay some penalty on delay of interst if RBI ants bank to pay after evry quarter.

    Second thing yes bank 6-7% interest thing attracted me to open a yes bank account. but i need one clarification i read it that interst on saving bank amount till 1 lakh is 6% and above 1 lakh is 7% but yes bank representative said if u keep amount above 1 lakh in that case interest on entire amount will be 7%. is that ture or yes bank person lied to me.

    Yogesh ur way of managing the contigency fund is good i will say . Will surly think about it…

    Manish

    1. I dont think Yes Bank representative told right thing to you . If you go to YES bank website, I think it clearly mentions that only additional part gets 7% interest. Also RBI does not have any guidelines on the interest payment frequency .

      1. Sundaram says:

        Dear Manish,
        I have checked with Yes Bank and they confirm that 7% will be paid NOT on the “additional” amount exceeding Rs. 1L but on the entire balance if the total amount exceeds Rs.1 Lakh.Also their site does not mention about only the “incremental” or “additional” amount above Rs. 1 Lakh earning 7%. Maybe the Yes Bank person was not lying….:)(as doubted by the other Manish)!Would appreciate your comments/observation.

        1. If you go to their website http://www.yesbank.in/index.jsp?navigationUrl=%2FYES+Bank+Repository%2Fen%2FBranch+Banking%2FBranch+Banking+-+Personal%2FSavings+Account

          Its written

          “Earn a higher return of 7% p.a.* on your YES BANK Savings Account for balance more than Rs. 1 lakh & 6% p.a.* for balance up to Rs. 1 lakh”

          I would like to trust what is written on website, rather than what is told by someone on phone 🙂

          Manish

          1. Sundaram says:

            Manish,I was referring to the same source-it does not mention for “incremental” or “additional” amount over Rs.1 Lakh- it merely mentions for balance more than Rs. 1 Lakh,7 % would be paid.Just to get more clarification,I referred IndusInd Bank site which clearly states that only incremental amount over Rs.1 Lakh would earn the higher interest rate of 6%. I guess the only litmus test would be to actually place over Rs.1 L in Yes Bank SB A/c and see the result 🙂

            1. I think there is no confusion , it says balance over 1 lacs 🙂

            2. Sundaram says:

              I guess it’s a matter of interpretation 🙂

            3. Sundaram says:

              A matter of interpretation? 🙂

            4. Vijay says:

              Litmus Test Results 🙂
              I do have Yes Bank Account and there was some periods in between when the balance was more than 1L. The 7% interest is applied on complete amount as per the quarterly interest provided.

            5. Sundaram says:

              Thanks,Vijay.Q.E.D. 🙂

            6. Sundaram says:

              Vijay,since you hold an SB A/c with Yes Bk,could you pls let me know the “daily maximum limit” for making online payments using Net-banking facility of Yes Bk.Is it “unlimited”(i.e. limited only by the extent of funds you have in the A/c) or is there any daily cap?(For instance,ICICI Bk has a daily limit of Rs.5 L). Thanks for your clarification.

            7. Vijay1 says:

              This is another Vijay here. I too crunched my account. After seeing this discussion thread, I too checked my account. Its 7% right from 1st rupee if the balance is above 1 lakh. I was also under impression that 7% is calculated on the balance only above Rs.1 lakh. Either its software glitch in interest calculation or the wordings in website is giving out a wrong message.

            8. Hmm.. its gettting confusing now . the website of banks mention that it will be over and above the 1 lac 🙂

  61. Srinivas says:

    Good article.

    Here it is pertinent to note that in this year’s budget, it was indicated that SB interest till Rs 10,000 is tax free. By diligently managing the balance in SB account, this can be utilised in tax planning.

    However, it is to be checked as to what will happen if auto sweep makes it an FD.

    1. Srinivas

      With Sweep in , the FD will not be tax free ! .. Only the pure saving bank account interest will get tax benefit

      1. Srinivas says:

        I too thought that way.

        In view of that, SB balance may be more logical(till interest doesnot cross 10,000 for the year) compared to FD’s or sweep accounts.

        Individual’s SB interest(Rs 10000) along with Rs 1500 tax free interest on each dependent child’s SB account can be an option(though minor) for tax saving.

          1. Ankur says:

            So does it mean to park money in SB (with 6% interest) vs. in FD if you come in 30% bracket? As I think post tax returns would be better with 6% SB acc.

            1. with FD the return would be better i guess , if its 10% return , then net return is 7%

  62. Yogesh Tiwari says:

    I second Auto sweep option..that works like charm…I have account in Kotak. Instead of keeping 1lac and then get 6% on amount over and above it…I asked them for account with least balance requirement…Edge account, they say…It needs 10K monthly avg balance…

    Once, you enable auto sweep, any amount above 20k, in multiples of 10k goes into short term (6months) FD and earns 8.25% (current rate).

    Now, that’s better than anything else…Best part is, since 6 months TD is less than 181 days, it doesnt warrant TDS nor a penalty(1% normally) if it is broken before maturity time…

    Lastly, I believe, this is best way to manage your contigency fund with highest possible liquidity and very decent return.

    -Yogi

    1. Thats a great tip !

    2. Vasanth says:

      Thanks for the tip Yogi!!

      I have a small query regarding auto sweep.

      If i have multiple FD’s (after enabling auto sweep) and if i withdraw amount above my threshold limit which FD will break?? the recent one or the first one??

      Regards,
      Vasanth

      1. Yogesh Tiwari says:

        Vasanth,

        Good question!

        Say, you have 3 FDs 60k, 20k, 40k in order of their creation date.

        Order of breakage is…oldest and smallest to satisfy account threshold limit.

        Incase you take out 10k,
        20k FD ‘d be swept out.

        Incase you take out 30k,
        20k FD and 10k from 40k FD ‘d swept out.

        I can confirm this becoz, that’s how it showed in my bank statement.

        -Yogi

        1. vasudha says:

          i think the most recent created fd breaks as they preserve the old fds to mature fully…his is how it works in my account in SBI

          1. Vasanth says:

            Term deposits are useful only if you have the cash deposited in ter deposit for min number of days for which the rate of int is 6%. in case of kotak , if you plan to withdraw money anytime before 45 days , its a loss. In SB account , you would have earned 6%, but by term deposit you will earn 5%.

            Hence, autosweep is a loss if we plan to withdraw money before 46 days.

            1. Raj says:

              Hi Vasanth,

              I have edge SB A/C with Kotak and they provided the auto swept facility .and i asked same query to the kotak executive and they confirmed if we withdraw the money before 46 days from auto sweep, for those days interest will be provided according to savings bank interest rate.

              Thanks
              Raj

            2. Vasanth says:

              Raj,
              I have double checked with Kotak. They provided me the same information. This is the same case with CITI bank too.

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