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Depositing funds in a savings account will quickly assist you to discover your short-term monetary goals. With banks presenting different kinds of savings accounts such as tailor-made accounts for kids, savings account for females, and pensioners, you can pick a savings account that suits your lifestyle and usage.
One of the most critical points to register about a savings account is the interest rate it comes with. In this article, we will know more about how the savings account interest rate is calculated and the formula used to calculate the same. Let us find out the answer to the question asked frequently – How banks calculate interest on savings account? Read on to know the details.
The saving account interest rate is specified daily depending on your closing balance, as per the new regulations by the RBI. Established on the type of savings account and the bank's policy, the interest earned will be credited to your bank account, allowing you to save money on a half-yearly or quarterly basis. The Reserve Bank of India (RBI) has encouraged banks to credit interest on savings bank accounts quarterly, as this helps consumers save more money.
The following formula is typically used to explain calculating the savings interest rate. It is also how banks calculate interest in a savings account:
Interest calculated every month = Daily Balance * (Number of days) * Interest / (Days in the year)
For instance, the daily amount is ₹ 4 lakhs, and the interest rate on the particular savings account is 4% per year; the calculation will be as follows:
4 lakhs * 30 * (4/100) / 365 = ₹1315 per month in interest.
TDS on Savings Account Interest
The interest amount you accumulate from a savings account is known as “Income from Other Sources”. The interest must be filed for Income Tax Returns. However, TDS is not relevant for a savings account as per section 194 A of the IT Act. Savings Bank Account Interest amount surpassing Rs. 10, 000 will be taxed at the marginal tax rate of the account holder. It is also crucial to cite that interest from a savings account is not an exemption but a deduction when you are learning about how to calculate interest on savings account. The deduction is permitted for interest earnings up to Rs. 10,000 only. The savings account must be held with a renowned government-private bank or financial institution for this purpose.
Advantages of a Savings Account
There are innumerable advantages that a saving account will offer you. Here are some of the significant advantages of maintaining a savings account.
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