Post Office Savings Account

Savings Account: An Overview

Savings Account is a basic financial product, offered by various financial institutions, that each person must have and use. A savings account lets you save money, deposit money, transfer funds, withdraw money, and it also gives you interest on the funds available in your account. A savings account not only helps you save some money but also lets you withdraw cash whenever you need. All investment products available in the market do not necessarily give you the double benefit of liquidity of cash and interest. Financial institutions offer different kinds of savings accounts to fit the lifestyle and usage of all. One of the main perks of a savings account is its interest rate. Read on to learn how savings account interest rate is calculated and also find out the savings account interest rates for major Indian banks.

Savings Account Interest Calculation

As per the new regulations mandated by the RBI, the interest on a savings account is to be calculated on the closing amount on a daily basis. The accumulated interest is to be credited to the savings account on a half-yearly or quarterly basis, depending upon the type of the savings account and the bank’s policies. However, recently, the RBI has asked the banks to credit the interest on a quarterly basis so that it is more beneficial to the customers.

Here is the formula to calculate the monthly interest for a savings account:

Monthly Interest = Daily Balance x Number of days x Interest / Days in the year

Assuming that the daily balance is Rs. 1 lakh and the interest on the savings account is 4% per annum, the calculation will be like:

Monthly Interest = 1,00,000 x 30 x (4/100) / 365 = Rs. 328.8

Savings Account: Benefits

Savings accounts offer countless benefits to the users. Here are a few of the major advantages of a savings account.

• The money deposited in a savings account is totally secure. It can be accessed and withdrawn whenever there is a financial emergency.
• The money deposited in a savings account is accessible at all times. In case of a sudden need, one can withdraw the cash from the bank or use a debit card to withdraw money without any hassles.
• A savings account lets one begin investing with minimum cash. One has to open a savings account with the minimum required deposit amount and then start depositing funds into the account whenever possible.
• One gets access to internet banking and phone banking through a savings account which opens a whole new world of easy and quick transactions. NEFT & IMPS facilities work well for paying utility bills. One can also check transactions and link credit card accounts to their savings account through Internet Banking facility, completely hassle-free.
• Some banks also offer personal insurance benefits along with a savings account.

Savings Account: Minimum Balance Requirements

If you read the terms and conditions for a savings account, you are sure to come across the term “Minimum Average Balance Requirements.” Some banks require a minimum daily balance while some others require minimum quarterly balance. Average Balance refers to the amount that must be maintained in the savings account over a certain period. It is calculated by adding up the daily balance and then dividing the balance by the number of days as per the requirements of the defined period.

Let's assume that a savings bank account has an average quarterly balance of Rs. 2000. The average of the daily balance in the account for that quarter should be Rs. 2000 too. Instead, of keeping a daily balance of Rs. 2000, one can also have Rs. 1,80,000 as the balance on one day of that quarter.

A non-maintenance penalty is imposed on those who do not maintain the specified balance requirements.

Most major banks in India offer Basic Savings Bank Deposit Account or BSBDA these days. These are zero balance accounts. These accounts do not need a minimum balance and one can use the BSBDA account just like a normal savings account.

Savings Account Interest and TDS

The interest amount gathered from a savings account is known as the “Income from Other Sources”. This earning from interest must be filed for Income Tax Returns. However, TDS is not supposed to be applicable for a savings account interest till Rs. 10,000 as per section 194 A of IT Act. Savings Account Interest amounts exceeding Rs. 10, 000 is taxable. Also, note that the interest obtained from a savings account is not an exemption from tax but a deduction. This deduction is granted for interest incomes up to Rs. 10, 000 only, provided the savings account is held with a recognized bank (either public or private) or with the Post Office.

Saving Account Interest Rate Calculator

A Savings Account Interest Rate Calculator can be used for calculating the interest amount to be earned from a savings account. A Savings Account Interest Rate Calculator requires information like average balance and interest rate offered by the bank. It also requires the user to select whether the interest will be payable on a monthly, quarterly, half-yearly or yearly basis. The calculator will compute the interest to be received for the daily balance at the savings account interest rate.

Savings Account Interest Rates Offered by Major Banks in India

This table can help you understand the prevailing interest rates in all major banks in India.