Late last year RBI deregulated the interest rates on savings accounts and allowed banks to set their own rates. This resulted in banks raising their interest rates and creating two slabs of under a lakh and over a lakh.
For example, Yes Bank offers 6% on the saving bank balance of under Rs. 1 lakh and 7% on balances of over a lakh. Similarly, Kotak pays 5.5% for balances of less than a lakh and 6% on balances of over a lakh.
There were a few comments at the time asking about how interest will be calculated and if banks will take the lowest bank balance in a month to calculate that or something else like that.
I was reminded of this discussion when I came across a RBI notification that issues some clarifications on the way interest is calculated.
From reading the second point in there it’s quite clear that the banks will pay you the interest on the basis of your daily balance. So, they will see what your balance was at the end of the day and pay you interest based on that.
The second aspect of that is slightly unclear to me. I read it to understand that if you have a balance of Rs. 1,25,000 in your savings bank account at Yes Bank – they will pay you 6% for Rs. 1,00,000 and 7% for the Rs. 25,000 after that. They are not going to pay you 7% for the whole amount, which is what I originally thought.
Does anyone have practical experience with this or knows for certain how this is going to be calculated? Please leave a comment or email me if you do as this is going to be of interest to a lot of people.