What does this mean for savings accounts holders?
Well it means we would be paid more interest on our money in savings account.
What is the existing system?
Right now the banks calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month.
What’s the new system?
Under the new system, the banks would pay a daily interest for e.g. even if someone withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.
Oh that’s great, so what is the present rate of interest anyway?
Banks pay an interest rate of 3.5% on the savings account deposits.
Currently, interest rates on saving accounts are de-regulated, barring up to Rs 2 lakh. The RBI only administer interest rates on saving bank deposits up to Rs 2 lakh, and for the deposits above this amount, banks are free to give any interest rates.
Tell me so how much more interest would I get?
It depends on a lot of things like your withdrawing and deposit patterns among other things. I just made a rough calculation. I assumed a scenario where you get Rs 50,000 as salary on 1st of every month and then you start withdrawing as needed for the rest of the month. Generally you withdraw more in start of the month to pay for your rent, fees, bills etc and then withdrawals are evenly spread out. In my hypothetical example the person would get 38% more.
How does it impact me?
In regular day to day situation it really doesn’t impact a saving bank account holder much in terms of monetary gains until he has a lot of cash flows in & out of the savings account. Like in the previous example you would get Rs. 96 instead of Rs 58 a month which is still peanuts.
But in special cases the difference can be a few thousands. Take this situation – you wanted to make down payment for your new house and so you keep a cash of 5 Lac in your Savings account from 1st of the month. You finally make the payment on 30th. So in the old case the interest would be 0 while with the new regulation you would get around Rs 1350.
I support RBI’s move as it seems more ethical & rational.
How does it impact the banks?
Saving Bank Account is a major source of cheap funds for banks and with this there cost of funds would get higher by around 25-40% and that’s why they really aren’t supporting this move.
But anyway RBI has mandated the new system to be implemented from April 1st, 2010.
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