Savings Account Interest Rates

Interest is earned on average balances in the account calculated on a daily basis. However, interest on savings account can be paid monthly, annually or quarterly.

The following formula is used by banks to calculate interest on Savings Bank Account on the basis of daily balance in the account

Interest = Amount (Daily balance)*(No of days)* Interest/Days in the year.

The example below explains the method to calculate interest on a savings account on a daily basis.
Illustration: Mr. A has ₹ 2,00,000 in his savings account from 1st June to 26th June of a year. On 26th June, he withdrew 1,80,000. What will be the total interest amount earned @ rate of 4% in the month calculated on a daily basis?

Interest for 26 days = 2,00,000 * 26 * (4/100)*365 = ₹ 569
Interest of 4 days = 20,000 * 4 * (4/100) * 365 = ₹ 8.76
Total interest earned during the month at the rate of 4% p.a. calculated on a daily basis is ₹ 577.76 (₹ 569 + ₹ 8.76)

Payment Banks are differentiated banks that are set up to ensure that there is financial inclusion of payment services to migrant labour workforce, small business holders, low-income households and workers in organised sectors etc. which are still not accessible to the commercial banks. Payment Banks in India work under following limitations.

• Payment Banks are authorised to accept a deposit up to ₹ 1 Lakh from a customer.
• Unlike commercial banks, Payment Banks can only issue Debit/ATM cards. They are not allowed to provide credit cards to customers.
• People can open both savings accounts and current accounts in Payment Banks.
• Only, Indian residents are permitted to open an account in Payments Banks.
• It also provides facilities for paying utility bills such as electricity, water bill etc.
• They are also allowed to offer Internet banking and Net Banking facilities to customers.

Paytm

• Paytm Payments Bank accepts customer deposits upto ₹ 1 Lakh in savings and current accounts.
• Along with providing free access to digital Paytm Debit Cards, it also offers a range of other financial services like Insurance, Loans, Mutual Funds of partner banks. You can request to get a physical Debit Card issued on a request.
• You don't require to maintain a minimum balance in Paytm Payments Bank.
• You can receive a 2.75% rate of interest per annum on money deposited in a savings account. You can earn upto 7% rate of interest by using a fixed deposit facility in Payments Bank.

Airtel Payments Bank

With Airtel Payments Bank, you can easily open a saving account with a paperless process in a few minutes.

• Airtel Payments Bank Ltd provides an annual interest rate of 2.5% p.a on your savings account.
• You don’t require to maintain a minimum balance in your savings account.
• Bank provides you with a free virtual Debit Card.
• You can also get access to the free personal accident insurance cover of Rs. 1 Lac.
• Airtel Payments Bank provides a plethora of services like making transfers, mobile/DTH recharge, paying utility bills, online shopping, FASTag etc.

India Post Payments Bank

Anyone above the age of 18 years with access to Aadhar and PAN card, can open a savings account with India Post Payments Bank.

• With India Post Payments Bank, you can receive interest at 2.75% p.a on your balance in savings accounts.
• Customers can open a savings account with zero balance.
• You don’t require to maintain a monthly average balance in your accounts.
• You can also get free monthly e-statements.
• With India Post Payments Bank, you can make easy bill payments and recharges.

FINO Payments Bank

• Interest on savings accounts in FINO Payments Bank can be received at 2.75%p.a. However, you can earn up to 7.25% p.a. by opting for a Sweep account facility.
• With FINO Payments Bank, you can get free Platinum/Classic RuPay Debit Card
• There is no commitment to maintain any minimum monthly average balance.
• It provides services such as depositing, withdrawing, transferring or receiving funds, shopping, paying bills.
• With Rupay Platinum Debit Card you can also get Accidental Insurance/Permanent disability cover of upto ₹ 2 Lakh.

Saving Account is an interest bearing account opened by a customer to deposit his or her surplus income. The account is designed for individuals who earn a fixed salary or a fixed income. This facility is also available to students, senior citizens, and pensioners and so on.

Typically, the amount of money that is not intended to be used for daily expenses is parked into savings account. The money is available to be withdrawn anytime and hence, the account is completely liquid, at the same time earning some interest.

Myriad features that are bank specific are available to the depositor. These include but are not limited to depositing and withdrawal facility using cheque, ATMs and online banking, sweep facility to fixed deposit accounts, phone banking and special loan offers

Interest rate on savings account were earlier fixed at 3.5% per annum. However, the rates were deregulated by RBI in 2011 and now banks are allowed to fix their own savings interest rates. As a result of deregulation, saving interest rates offered by banks in India today range from 0.50% to 7.50%. Highest saving deposit rate is offered by Jana Small Finance Bank.

While, both savings and fixed deposit accounts are designed to allow the depositors to save their surplus money, there are some basic differences between savings account and fixed deposits account in the nature of savings that should be parked in these accounts, rate of interest and transaction facilities allowed on these accounts.

Savings account are meant to park your savings while allowing you to use the funds for paying your expenses as and when required. In contrast, current account is a pure transaction oriented account which is designed to allow businessmen carry their daily business transactions and also avail overdraft facility when required.

• RBI Increases the Limit for Payment Banks
  In the first bi-monthly monetary policy announcement for the financial year 2021-22, RBI has increased the end day balance payment from Rs. 1 Lakh to Rs. 2 Lakh. The decision has been taken to promote digital payments banks in the country.

✅Is savings account interest taxable?

Interest up to ₹ 10,000 accrued on your savings account during a year is tax free under Section 80TTA.

✅How do interest rates on savings accounts work?

Interest rates on savings accounts are calculated on the average balances in the account on a daily basis. This interest is however paid monthly, annually or quarterly as per the policy of the bank.

✅Which bank has the best interest rate for savings?

Presently, Jana Small Finance Bank provides interest rate upto 7.50% and thus has best interest rate for savings.

✅What is the average interest rate on a savings account?

Earlier interest rates on savings accounts were fixed at 3.5% per annum. However, the rates were deregulated by RBI in 2011, and now banks are allowed to fix their own savings interest rates. As a result of deregulation, the savings interest rates offered by banks in India today range from 0.50% to 7.50%.

✅Can DEMAT account be opened with savings account?

Yes, DEMAT account can be opened along with Savings account. DEMAT accounts are required to trade in various stock market instruments and they have different charges from the savings account.