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All about interest rates on saving bank account

Banking becomes so much necessary now a day as almost every person in India has a saving account. This term boost when banks start issuing debit and credit cards which makes banking so much convenient.

Banks give interest on saving bank balance. Earlier it used to be very low around 4% in all the banks.   RBI had deregulated the banks and can decide how much to pay on the deposit on saving account.

So now a day’s some banks offer more rate of interest than normal 4% like inducing bank, Yes Bank and Kotak Mahindra Bank and IDBI Bank  offers 5-6% rate of interest on the deposit on saving account depending on the deposit amount as there is a slab of more than 1 lakh and less than 1 lakh. 

Saving account interest calculation
 Earlier the calculation of the saving account interest was not rational as the formula was the interest rate of 4% per annum was applied against the lowest balance available in the account between the 10th and the final day of the month. But From April 2010, the calculation system changed to daily method for giving the customers full benefit of the saving account. In this method interest is given on the daily balance. Download interest on saving account calculator in excel format from here.

De regulation result
However RBI had free the banks to decide interest rate on saving account but only some small banks did it. Major players like HDFC bank, SBI, and ICICI bank did not change the interest rate on saving account and it remains same at 4%. 

But there are no big changes in the number of saving account with the big players. This means customers are not only looking rate of interest but convenience, faith, quality of service, familiar with the bank, friendly terms also means a lot to the customers.

Income tax on interest on saving account
Interest on saving account is not subject to Tax deduction at source (TDS) like fixed deposit. But it doesn’t mean that interest on saving account is exempted to income tax. Interest on saving account is exempted up to Rs. 10000 a year and above this is subject to income tax.

Minimum balance
Minimum balance plays a big role in deciding with which bank you should have a saving account. Some banks has higher minimum balance requirement whereas some banks low. Like ICICI bank, HDFC bank and AXIS bank requires Rs. 10000 to be maintain monthly in saving account. Whereas Public sector banks like SBI only requires 1000 rupees. In both the cases, you will get debit card and cheque book with your account.

Minimum balance charges
There are big charges for non-maintaining minimum balance. This differs bank to bank. This may be 200-1000 rupees per quarter. Banks charges the minimum balance on quarterly basis and not monthly. So you need to maintain minimum balance on quarterly basis. Like if the balance is 30000 for full month of January, you can withdraw the entire amount for the next two month. Due dates are also matters as almost every bank has the different dates to calculate the minimum balance on quarterly basis.

So don’t run for extra rate of interest as there are many thin more to matter for choosing the bank for having a saving bank account with.
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