Savings deposits to yield more as banks switch to daily interest

31 Mar 2010

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Savings account deposits will yield 30 to 40 basis points more to the account holder from Wednesday, with the banks following the Reserve Bank of India guidelines and switching to the new method for calculating interest on savings deposits on a daily basis.

At present, the interest rate on savings accounts is calculated on the minimum balance held from the 10th day to the last day of each month. A savings deposit yields an interest of 3.5 per cent and is credited to the account on a half-yearly-basis. However, under this system, the actual interest that the account holder gets is closr  to 2.9 per cent.

Even under the new system, interest will continue to be credited at the end of every six months.

"With the new norms coming into effect from 1 April, the cost of funds for banks would increase between 30 and 40 basis points," Bank of Maharashtra chairman and managing director Allen Pereira told PTI. "But it would be difficult to say how much of it would translate into for individual savings account holders."

According to Corporation Bank executive director Asit Pal, the new calculation system on the daily balance would be beneficial for customers. Explaining the new provisions, he said, "Supposing that you have Rs500 in your account and next day it increases to Rs700, interest rate of 3.5 per cent per annum would be payable on both Rs500 as well as Rs700 on a daily basis."

With computerisation of banks, Pal said, it has become possible to calculate interest on each savings account on a daily basis.

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