Interest on deposits in Saving A/c – Change in Rule – Benefit for A/c Holders

RBI’s Annual Policy Statement 2009-10 released yesterday (21st April) includes the following

“(b) Payment of Interest on Savings Bank Account on a Daily Product Basis
88. At present, interest on savings bank accounts is calculated on the minimum balances held in the accounts during the period from the 10th day to the last day of each calendar month. Several banks have suggested that interest on savings bank accounts may be calculated either on the minimum balances in the deposit accounts during the period from the first to the last day of each calendar month or on a daily product basis. The matter was referred to the IBA, which was of the view that payment of interest on a daily product basis would be feasible only when computerisation in banks is completed. In view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that:
• payment of interest on savings bank accounts by scheduled commercial banks (SCBs) would be calculated on a daily product basis with effect from April 1, 2010.
Modalities in this regard will be worked out in consultation with banks.”

What does it mean to us?

Today, the Savings Bank A/c Holders receive virtually nothing as interest from banks inspite of maintaining good deposits for most part of the month as interest is paid out on the lowest amt. in the a/c from 10th to the last day of the month.
Henceforth, interest will be paid out on daily balance, i.e., interest will be calculated on a daily basis based on the day’s balance. This will increase the interest paid to the a/c holders as they will get the interest for the money they keep in the a/c.

This regulation is effective from 1st APRIL, 2010. Looking forward for that day….