Some good news for savers

by Manshu on February 24, 2010

in Economy, Fixed Deposits

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Although a few days old; I missed this story somehow. Nevertheless, there is some bit of good news for Indians who have money in a savings account.

For some twisted reason, banks used to take the minimum balance of your account between the 10th and last day of the month, and calculated interest on that. So, if you had a low balance on one day but a decent amount for the rest of the month – your interest would still be calculated based on the lowest balance.

Example: You have 40,000 from Feb 1st to 25th, but on the 26th, you pay off your car and housing loan EMI, due to which your balance comes down to just 5,000.

The bank will pay you interest for the whole month of February only on Rs. 5,000.

This is pretty unfair, and it is easy to see how this benefits banks.

The RBI has now asked banks to pay interest to savings account holders on a daily basis. This will be effective from the 1st of April 2010, and will ensure that you get money on whatever is in your account, and not just the minimum balance.

This will of course dent the profits of the banks by a bit, – Bank of Baroda (BoB) expects their net interest margin (NIM) to decline by 0.12%, but that is a small price to pay for fairness.

If you are interested in bank savings in a bank, do check out my page on bank interest rates in India.

Photo Credit: Alan Cleaver

{ 8 comments… read them below or add one }

Financial Samurai February 24, 2010 at 8:37 PM

Looks like HDFC raised deposit rates, which means so should the other banks to attract deposits! Axis looks good, whatcha think?


Manshu February 24, 2010 at 8:53 PM

You are spot on buddy. I am surprised you have such a keen eye on the Indian market 🙂


Financial Samurai February 25, 2010 at 8:21 AM

Cool. Yeah, I enjoy studying international markets and understanding as much as I can.

Good for Indian savers, but the equity culture seems so strong in Indian that perhaps it’s not enough to entice people to save.

Inflation needs to be contained, as food prices seem to be running at 20% and out of control!


Manshu February 25, 2010 at 10:20 AM

Actually retail participation in equity is quite low in India. People tend to save quite a bit but avoid equities for the most part. In fact, SEBI – the market rgulator (much like SEC) – ran some sort of program last month where they tried to teach school students the virtues of saving, investing in the stock market etc.


Financial Samurai February 25, 2010 at 8:17 PM

Very interesting! Maybe I’m just talking to a wrong sample set of people. Where are you based? I enjoyed my visit to Mumbai, Delhi, Agra, and Hyderabad!


Indian Thoughts February 24, 2010 at 11:51 PM

I am eagerly waiting for april since last october when I first read the news 🙂


Manshu February 25, 2010 at 8:08 AM

I just read about this day before yesterday so I must be really behind the times 🙂


Manshu February 25, 2010 at 8:25 PM

@FS: Right now in Indianapolis, but I am originally from Delhi.


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