What are interest rates for savings accounts

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The interest rate on a savings bank account is crucial as it helps the consumer determine how much they can earn on parked money. Both public sector and private sector banks offer interest on their savings accounts to facilitate users to earn maximum interests. 

We’ve put together a list of savings account interest rates to help you choose the account that’s most suitable for your needs. 

Interest Rates of Public Sector Banks

The Government of India has merged a few public sector banks for the ease of their management, hence the interest rates of the merged banks will be that of the bank they are merged with. 

The interest rates of majority of Indian banks are as follows: 

Bank of Baroda

Bank of India 

Bank of Maharashtra

Canara Bank

Central Bank of India 

In the Central Bank of India, interest on deposits beyond INR 10 lakh is linked to the repo rate.

Indian Overseas Bank

Punjab and Sind Bank 

Punjab National Bank

State Bank of India 

UCO Bank 

Interest Rates of Private Sector Banks

Axis Bank

In Axis Bank, the interest on deposits of INR 10 crore and more than INR 10 crore is linked to the repo rates.

Bandhan Bank

CSB Bank

City Union Bank

DCB Bank

Dhanlaxmi Bank

Federal Bank

The Federal Bank has linked the interest on the deposits to the repo rate.

HDFC Bank

ICICI Bank

IDBI Bank

IDFC FIRST Bank

IndusInd Bank

Karnataka Bank

Karur Vysya Bank

Kotak Mahindra Bank

Nainital Bank

RBL Bank

South Indian Bank

Tamilnad Mercantile Bank

Yes Bank

How do Banks Calculate Interest?

Banks in India calculate interest daily on the closing amount of that particular day; let’s understand this with an example. An account has INR 1 lakh in it at the end of the day and the bank is providing an interest of 3%, then the formula of simple interest will be used to calculate the interest on that sum for that particular day. 

The procedure is as follows: 

                        100,000 X 3/100 X number of days/ 360

                        100,000 X 3/100 X 1/ 360 = INR 8.333

                         INR 8.333 is the interest for a single day.

X = multiplication sign 

This process will take place every single day on the amount and will be credited to the account every month. Once the amount credited the aggregate (amount + interest) will be regarded as the principal amount, this means that the account holder will get an interest the amount deposited by him and also the interest that he has received from the bank. This method is known as compound interest. 

Role of Repo Rate In Calculation of Interest

Some of the banks as per the below tables have linked their interest rates with the repo rate and hence any fluctuation in the repo rate will change the interest rate as well. Now to understand this process better we will have to understand the term repo rate first.

• Repo rate is the interest at which the central bank of a country (RBI in India) lands money to other banks.
• RBI has recently increased its repo rates.

As we understand that repo rate is the interest at which banks get loans from RBI so any increase in that will increase the financial burden on the bank, though RBI lends money at a smaller rate of interest than what the banks charge from their applicant but nevertheless the burden of the hike will eventually fall on the customers of the bank. Eventually the customers pay more interest on their loans.

While it increases the burden on people paying their loans back, it is beneficial for people’s deposits like savings and fixed deposits (FDs), making them more valuable for the banks as they satisfy their requirement of cash without borrowing money from an external source like RBI. Hence, increase in repo rate will increase the interest rate on any kind of deposit.

There is no standardized rule of linking the interest rates to the repo rates and banks apply this at their own convenience, for example Axis Bank a month ago had deposits above 10 crore linked to the repo rate. Post the RBI hiking the repo rate this May, Axis Bank switched to the simple interest method and halted linking interest rates offered to the repo rate.

The formula to apply the repo rates on the interest is also not standardized and differs from bank to bank.

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