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How Banks Calculate Interest on Savings Accounts in India

Savings account interest rates are set by banks and typically vary from 2.50% to 7.00% annually. Individuals who are new to banking choose savings accounts as they offer benefits in short and long-term savings. They can open savings accounts from several public and private sector banks in India. Savings account interest rates are set by banks and may vary.

Although there are other avenues for higher interest, savings accounts are a choice for many based on their dependability and safety. There are numerous additional methods to profit from savings accounts.

In addition to being one of the safest places to keep your hard-earned cash, savings accounts are simple to manage and operate and offer several amenities, including cheques, cards, etc.

Why Should you open a Savings Account?

  • You can guarantee your money is safe when you put it in a savings account.
  • You can use an e-wallet or UPI to make transactions on the go and move your money from your savings account to other accounts,

How is Savings Account Interest Calculated?

A fairly straightforward formula determines savings account interest. Remember that interest in a savings account is earned, not paid. The primary interest formula follows:

Interest on a monthly basis = Daily Balance * (Number of days) *Interest / (Days in the year)

Let’s use an example to help you understand this formula:

Suppose you have a daily savings of Rs. 80,000, and your bank pays you interest at 4% annually. Interest would then be calculated as follows:

Interest = 80,000*30*(4/100) /365 = Rs. 263

Your savings account balance of Rs. 80000 will earn you Rs. 263  daily.

Every rupee you maintain in a bank works to your benefit. For instance, if your savings account balance fluctuates, the calculations will now be based on the fluctuations. Let’s use an example to understand the calculations better:

  • On November 1, Raghav had Rs. 80,000 in his bank account.
  • Raghav received Rs. 20,000 in Insurance on November 15. His bank now has a total of Rs. 100,000.
  • On November 25, assume Raghav took Rs. 50,000 out of his account. The current balance is Rs. 50,000.

Interest will be computed using a different period and amount.

  1. Between November 1 and November 15, Rs. 80000 in interest will be earned.
  2. From November 16 to November 25, interest will be calculated.
  3. From November 26 to November 31, interest will be calculated.

Maximize your Interest Rate

1. Select a high-return bank account

Several financial organizations and online banking services provide competitive interest rates. You can transfer your money to a reputable bank or financial institution offering a better interest rate.

2. Category-Based Account

Many banks provide separate savings accounts for children, young adults, and seniors. These accounts could have interest rates that are higher than typical savings accounts.

3. Use the auto-sweep facility

Utilize your savings bank account’s sweep-in and sweep-out functionality. Excess funds are automatically transferred under this service to a fixed deposit account that offers a better rate of return. You can sweep the funds back into your savings account if you need quick cash.


Savings accounts are a go-to for many Indians, largely due to the safety they ensure. You can easily calculate the interest you can earn each month on your savings account balance. The above-mentioned interest rate formula will help you easily determine your savings account interest rate.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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