How savings account interest rate is calculated

A savings account has no time restriction or maturity period. As long as you keep money in the account, you will receive interest. But keep in mind that some savings accounts can require you to maintain a minimum balance. To conduct any financial transactions, a savings account is required.

Different banks offer different interest rates depending on the deposit amount.


offer 3% interest on balances less than Rs 50 lakh and 3.5 percent interest on balances greater than Rs 50 lakh.

How many of us know how the real interest on a saving account is calculated?

Here is a simple explanation from

. However, note that you need to check with your bank to know the interest calculation.

How to calculate interest on a savings account

The RBI regulation states that the interest rate on your savings account is determined daily based on your closing balance. Your bank will credit your account with the interest earned on a semi-annual or quarterly basis, depending on the type of savings account you have and the bank’s policy. The Reserve Bank of India (RBI) has urged financial institutions to credit interest on savings accounts on a quarterly basis since doing so encourages users to save more money.

How to calculate savings interest rate is commonly explained using the formula below. Banks also determine interest on savings accounts in the following manner:

If the daily amount is Rs 3 lakhs and the interest rate on the savings account is 4% per year, the computation will be:

Interest on a monthly basis = Daily Balance * (Number of days) * Interest / (Days in the year)

3 lakhs * 30 * (4/100) / 365 = Rs 986 per month in interest

  • Daily balance: 3 lakh
  • Number of days: 30
  • Interest: 4%
  • Days in the year: 365

According to HDFC Bank website, “savings bank interest will be calculated on the daily balances maintained in your account. Savings Bank interest will be paid at quarterly intervals.”

How to calculate taxes on the interest on savings accounts?

The amount of income you receive from a savings account is referred to as “Income from Other Sources.” Tax returns for this interest must be filed. Meanwhile, section 194 A of the IT Act states that TDS is not chargeable on a savings account.

According to the IDFC First Bank website, “Interest earned on this type of savings account that exceeds ?10,000 is taxed at the account holder’s marginal tax rate. It is also worth noting that savings account interest is a deduction, not an exclusion. The exemption is only available for interest income up to ?10,000, and the savings account should be maintained with a recognised public or commercial bank or the Post Office.”

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Roy Walsh

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