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Earn More Money From Saving Account

piggybank According to a recent RBI directive, starting 1st Apr. 2010 you will be earning interest on your saving bank account on a daily basis. This means that you will be earning more interest from your account than you did before. But how much more? Read this post to know. Before seeing how much we are going to earn as an interest now, let us first compare the two methods:
Old MethodNew Method
Rate of Interest3.5% p.a.3.5% p.a.
Interest calculated onMinimum balance between 10th and last day of monthOn a daily basis
Interest credited onHalf yearly basis in March and SeptemberHalf yearly basis in March and September
Now consider the following balance sheet as an example:
1st AprBrought Forward2000
2nd AprSalary2700029000
5th AprHouse rent500024000
11th AprPhone bill200022000
12th AprShopping500017000
24th Aprflight tickets80009000
28th AprShares sold300012000

Calculating the bank interest according to the old method:

Minimum balance between 10th and last day of month = 9000/- Interest earned for this month= P*R*T/100 Where P= Principal amount= 9000 R= Rate of interest = 3.5 T= Time = 1 month = 1/12 year Note: I have seen some blogs where the writer has not changed the time to year. Since the rate of interest is given as per annum (i.e. yearly basis) so the time should also be in years. Using these values the interest comes out to be Rs. 26.25/- This is the interest for the month of April. In a similar way interest for other months is calculated and the total interest is credited to the account in September and March.

Calculating the bank interest according to the new method:

We’ll use the same formula as above. However our principal amount will change.
PrincipalTimeRate of InterestInterest
20001 day3.5% p.a.0.19
290003 days3.5% p.a.8.46
240006 days3.5% p.a.14
220001 day3.5% p.a.2.14
1700012 days3.5% p.a.19.83
90004 days3.5% p.a.3.5
120002 days3.5% p.a.2.33
Note that we’ll have to convert days to year before calculating the interest. From the new method, the interest for the month of April comes out to be Rs. 50.45/-, which is almost double of what we were getting earlier. NOTE: You won’t always earn more from this method. Consider an example. You have zero balance in your account for first 9 days and then deposit a sum of Rs 20,000/- on the tenth day. You don’t make any withdrawal now for the entire month. In this case going by the old method you would have earned interest on Rs 20,000/- for full one month, but by the new method you’ll earn interest only for 20 days. Conclusion This is definitely a good move by RBI. Earlier if a customer withdrew the entire amount from his account on say 20th of the month, he earned zero interest even though the banks utilized his funds for 20 days. But now he’ll get interest for those 20 days, which is a fair process. But considering the inflation rates, saving bank accounts still remain a less lucrative method of generating wealth. I suggest you to read how RBI checks inflation using Repo, Reverse Repo, CRR and SLR rates. Follow KnowledgeHub on twitter @knwhub to receive latest tweets. Follow me on twitter @anshuldixit. If you are new here, please visit sitemap to see a list of articles published so far. If you found this article useful please subscribe for free to our newsletter to receive updates in future. You can also become a fan of Knowledge Hub’s facebook page.
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21 Responses to Earn More Money From Saving Account

  1. dissertation engineering blog April 12, 2010 at 11:50 am #

    Great blog! The information you provide is quiet helpful, why I was not able to find it earlier. Anyways I’ve subscribed to your feeds, keep the good work up.

  2. Anshul April 12, 2010 at 12:21 pm #

    Glad that you found it useful.. now that you have found the blog hope to see you here more often 🙂

  3. Repspace.com April 13, 2010 at 4:27 am #

    it is very nice plan for us

  4. matt April 13, 2010 at 10:21 pm #

    ok, i like this gameplan.

  5. Anshul April 14, 2010 at 10:06 am #

    @ Repspace
    Yeah i agree with you

    @ Matt
    That makes two of us 🙂

  6. Jabber Server April 14, 2010 at 12:14 pm #

    I am very Happy with new scheme for calculating interest for saving account. And you explain in such a nice manner that how banks will calculate the interest in scheme. I was waiting for this new scheme.
    Thanks for sharing this wonderful information in a well managed way.

  7. Anshul April 14, 2010 at 12:58 pm #

    @ Jabber
    Thanks for commenting. Glad that you found what you were looking for. Hope to see you here more often.

  8. kangra - BhagsuNag April 17, 2010 at 4:04 am #

    Great blog! The information you provide is quiet helpful for everybody, thanks for sharing this type of information.California swimming pools

  9. Simran April 22, 2010 at 3:14 pm #

    It seems like you are great in doing calculations 😀

    Thanks for sharing the news with us 🙂

  10. Anshul April 22, 2010 at 4:13 pm #

    Thanks Simran. Yeah I love financial stuff. Hope to see you here more often. 🙂

  11. james covert April 23, 2010 at 1:15 am #

    I'm very poor with financial statistics, this post suggests how much more we can do to get money working for us.

    It's amazing how we rip ourselves off.

    I,m just new to the world of having my own finances to a scale of looking after them, will check in again.

    Good skill you have

  12. Anshul April 23, 2010 at 3:49 pm #

    @ James
    Glad that you found it useful. I'll soon write about other finance related stuff. Hope you'll find that equally useful.

  13. Varun Jindal May 1, 2010 at 11:58 am #

    Very nicely explained article! Kudos to Anshul for bringing out the article in such a nice form. However, the statement that the customers will be earning more interest from their accounts than they did before, will not hold true for every case.

    Let's take an example to illustrate. Suppose I deposited an amount of 20,000 on 10th of April 2010 and say I don't make any withdrawls throughout the month. Assuming that my balance at the begining of April month was NIL, I'll be entitled to Rs.57.53 in interest as per the old method while new method will give me just Rs.40.27 in interest.

  14. Anshul May 1, 2010 at 12:32 pm #

    @ Varun
    A very nice observation Varun :). Thanks for that. I'll update the post with your observation.

  15. Jabber Server May 21, 2010 at 7:16 pm #

    I am very happy that all the Banks will give the interest according to this new scheme. When I saw this information in the news paper, I was daily check my account balance and think that why Banks not giving daily interest. Here I found that all the daily interest will give in the specific months at a time.

  16. michael jordan shoes July 30, 2010 at 8:30 am #

    your article is very wonderful,looking forwand you next post what you said is so perfect,and give me great help,i am agree with you ,thank you very much

  17. Jaganmangat October 23, 2010 at 5:54 pm #

    ok anshul that was scary not your post but your P.R.T[principle,rate of interest,time sum],i remember the childhood time when maths teacher use to give me sums of this chapter and much of the time i use to see cross mark gifted by the teacher because of wrong principle or wrong rate of interest taken and like that hahaha……

  18. Lucky November 26, 2010 at 9:39 am #

    Hey man thnx yaar wanted to know about this

  19. ideQ April 23, 2011 at 8:28 am #

    Hmmm nice info, I hope Indonesia have such benefit. Is it really works?

  20. Anonymous August 8, 2011 at 8:10 pm #

    thank u sir……….thank u so much 4 such a nice site….
    it becums very helpful for us…..
    can u plez add some articles on fixed deposites…. thank u…

  21. Sandeep pareek August 19, 2011 at 9:09 pm #

    gud article. . . like for the post….