Technology Aided Change in Interest Calculation
- A Bonanza for Savings Account Holders


By

Manisha Dimri
Lecturer
Doon Institute of Management and Research
Rishikesh, Dehradun
 


Introduction: The importance of savings for economic development of a nation can hardly be overemphasised. The major part of financing must be internal, which, in itself, is a prerequisite for attracting foreign participation. All development requires the involvement and support of the people in a developing country, and it is therefore a logical approach in development that a country should demand cooperation and sacrifice of its own citizens. Working towards ensuring greater cooperation from the general public towards developing and encouraging saving habit, the RBI has come up with a new directive.

Daily interest on savings  account :  According to this new directive of the RBI which comes into effect from April 1, 2010, banks will have to calculate interest on saving bank accounts on a daily basis, in contrast to the sixty nine year old system of calculating interest on the lowest balance in the account between the 10th and end of each month. There is a caveat though: although the interest will be calculated on a daily basis, it will be credited to the account only at the end of each quarter or the half year. It is a welcome change specially when taking into account that banks used the methods of calculating interest on a day to day basis in the case of all loans given by them, but the same method was not being used to benefit consumers at large for money deposited in their savings bank accounts. Besides modern technology available makes such calculations on day today basis a simple mathematical exercise and so the banks are not required to do anything out of the way to implement this scheme

Implications of the New Directive of RBI :

This change in the calculation will help every rupee kept in one's savings bank account to earn more money.  Infact this change in computation made possible by the use of technology in banking will translate to about 16-18% higher earnings for the depositor from their accounts and in some situations will even lead to over 50% interest in the accrued interest alone. To put it in other words  if a person till now had been earning around Rs. 100 annually as interest income from his savings bank account, from this financial year, yhe amount will jump to Rs. 116 118.

Conclusion : The new structure for interest calculation will force interest paid on ultra short-term fixed  deposits , say for 15 days to 45 days , to go up substantially, besides of course the savings account earning about 16 18 % more  than what it had been earning till last financial year. Indeed the new directive issued by the RBI is no less than a bonanza for consumers holding savings bank account, who have desperately looking for some sort of relief and incentive in times of inflation.

Bibliography:

The Economic Times
The Times of India
Finance.indiainfo.com
Financial Express
 


Manisha Dimri
Lecturer
Doon Institute of Management and Research
Rishikesh, Dehradun
 

Source: E-mail April 3, 2010

          

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