Tuesday, 5 April 2011

RBI's new interest rate policy & its effect

I thought of writing this piece of information long back in Jan but I kept forgetting

I am sure you all might be aware of the change in the calculation of interest payout for savings account

Though the interest rate remains same, the actual interest earned will be comparatively higher. Specially, the salary account holders will be on a fair advantage

Here is how

Old Rule of paying interest on savings account- See the closing balances of the day from 10th of a month to the last day of the month. Whichever is the lowest, it shall be the amount that will be considered to pay interest

An illustration
Date - Balance - Reason
01 - 50000 - Yesterday, salary was credited (40000) and there was a balance of 10000 earlier
02 - 45000 - Rent paid (5000)
03 - 44000 - Petrol/Diesel (1000)
04 - 42000 - School fees (2000)
05 - 39000 - Loan EMI (3000)
06 - 39000 - No txn
07 - 39000 - No txn
08 - 36000 - Mutual fund SIP (3000)
09 - 36000 - No txn
10 - 36000 - No txn
11 - 30000 - Grocery, shopping, sunday fun, movie, masti, etc
12 - 30000 - No txn
13 - 30000 - No txn
14 - 30000 - No txn
15 - 30000 - No txn
16 - 30000 - No txn
17 - 30000 - No txn
18 - 30000 - No txn
19 - 30000 - No txn
20 - 27000 - Electricity bill, water bill, telephone bill, Medical expenses
21 - 25000 - Wife
22 - 15000 - A very close friend in need of money, he will return it as soon as salary comes
23 - 15000 - No txn
24 - 15000 - No txn
25 - 14000 - Petrol
26 - 14000 - No txn
27 - 14000 - No txn
28 - 12000 - General expenses
29 - 12000 - No txn
30 - 62000 - Salary 40000 & friend returns 10000

Now, check the balances from 10th & 30th of the month. The lowest of these balances is Rs 12000. Thus, you shall be paid interest on Rs 12000

New Rule wef 01 April 2010- The interest shall be paid on the average balance maintained through the month

To find the average balance, we have to total the balances for 30 days and divide it by 30

The total of the daily closing balances is Rs 901000. And thus, the average balance is Rs 30033.33

And you shall earn interest on Rs 30033.33

This is going to be a bad hit for the banks but the general public would be benefited. Please note that the interest on loans is calculated is in the same way. One must thank RBI for its initiatives that have made Indian Banking Sector such a beautiful arena. Perhaps, the RBI is the major reason for BANK NIFTY to keep rising all the time

Money saved is money earned. Money not lost is money earned

Happy SAVING!!!

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