Basic Concept of Interest

• Interest in a savings account is the income earned on deposited money.
• It is calculated as a percentage of the account balance.
• Banks pay this amount to encourage saving habits.
• The interest rate is set by each bank within RBI’s guidelines.
• It is credited to the account at regular intervals.

Types of Interest Calculation

• Banks use either simple interest or compound interest methods.
• Compound interest is more common and yields higher returns.
• Interest is calculated daily based on closing balance.
• Monthly or quarterly compounding adds interest to the principal.
• Frequency of calculation affects the total earnings.

Credit Frequency and Payouts

• Most banks credit interest quarterly to the account.
• Some offer monthly interest credit for specific account types.
• The interest is added directly to the available balance.
• Statement entries reflect credited interest as separate transactions.
• There is no need for manual withdrawal to receive interest.

Factors Affecting Interest Earned

• Total balance maintained directly impacts interest earnings.
• Higher balances usually result in more interest over time.
• The specific interest rate offered by the bank influences returns.
• Some banks offer tiered rates based on balance slabs.
• Account activity and minimum balance rules may also apply.

Bank and Regulatory Guidelines

• RBI mandates banks to calculate interest on a daily basis.
• Interest rates are periodically reviewed and adjusted by banks.
• Customers are notified of any changes through official communication.
• The process is automated, ensuring accuracy and transparency.
• Interest policies are publicly available on bank platforms.