April 26, 2019

How does SBI Savings Account Interest Rate is calculated?

Effective from 1st May 2019, SBI Savings Account Interest Rate calculation will change. Many of us may not notice this change. However, it is important for you to know how the interest rates on the savings account will be calculated in SBI Bank.

As you may be aware, whenever there is an uptrend in interest rate movement, banks are hesitant to pass on these benefits to customers. However, if there is a downtrend in interest rate, then they immediately used to reduce the interest rate on Savings Accounts and other forms of FDs.

Same is the case of lending rates. Whenever there is a downtrend in interest rate movement, banks are hesitant to pass on the lower interest rate loans to customers. However, if there is an uptrend in interest rate, then they immediately used to raise the interest rate of their lending rates.

Now to avoid such confusion among customers, SBI came up with the new change to in arriving at the SBI Savings Account Interest Rate.

How does SBI Savings Account Interest Rate is calculated?

As I pointed above, these new rules will be effective from 1st May 2019. Earlier they have the freedom to choose the interest rate based on the interest rate movements and other feasibilities.

What is Repo Rate?

Before jumping into understanding how the SBI Savings Account Interest Rate is calculated, we must understand what is the meaning of Repo Rate.

When Banks need money then they approach the RBI. RBI will lend the money to banks by charging a certain interest rate. Such a rate which is chargeable by RBI towards the lending the money to bank is called as Repo Rate.

Such rate or Repo Rate is the cost for the banks which they borrowed from the RBI.

Now let us jump into understanding the concept of how SBI Savings Account Interest Rate calculation goes on from now onwards.

Refer the below image for the notification in this regard.

SBI Savings Account Interest Rate

You noticed that the interest rate of up to Rs.1 lakh balance will be still fixed by the SBI Bank itself. However, any balance above Rs.1 lakh will be linked to RBI’s Repo Rate.

If your savings account balance is above Rs.1 lakh, then SBI Savings Account Interest Rate will be 2.75% lesser than the current Repo Rate.

For example, the current repo rate is at 6%. Hence, the current SBI Savings Account Interest Rate for the money which is beyond Rs.1 lakh will be arrived as below.

SBI Savings Account Interest Rate (For above Rs.1 Lakh Balance)=Repo Rate-2.75%.

SBI Savings Account Interest Rate (For above Rs.1 Lakh Balance) 3.25%=6%-2.75%

Hence, whenever there is a change in Repo Rate, you will find the change in SBI Savings Account Interest Rate (for the above Rs.1 lakh balance amount). Higher the repo rate means higher the savings account interest rate and vice versa.

What are the benefits of linking SBI Savings Account Interest Rate to Repo Rate?

As I pointed above, the change in interest rate will reflect automatically as and when there is a change in Repo Rate by RBI. Hence, there is no room for doubting your bank. However, falling repo rate may turn to be negative for many of those who keep the hefty balance in their savings account.

What are the alternatives to Savings Account?

As you may be aware that the savings account interest rate hovered around 3% to 4%. Hence, what are the alternatives for individuals?

# At first, keeping idle cash is the biggest mistake one will do. Hence, never keep the idle cash beyond your immediate need.

# You can experiment with few banks who offer you the higher savings account interest rate. But higher the rate higher the risk. Hence, just considering the interest part, never jump for parking your idle cash or hefty cash in a savings account.

# Keeping hefty cash in a savings account is RISKY. If you lost a card or if your account gets hacked, then you may end up in loss. Hence, never keep the cash more than the immediate need.

# You can explore the Overnight Funds where the risk is minimal or Liquid Funds (bit higher riskier than overnight funds). Few AMCs offer you up to Rs.50,000 instant redemption per day. Hence, I don’t think liquidity may be an issue. However, understand the risk involved even in Liquid Funds and take your own call.

7 Comments

  1. Sir,now the interest rate on savings bank account are on daily basis.and the capital is the day closing balance as I read in other articles..my query is at what time of day the day closing balance is taken to pay interest.
    I’m just providing an example :
    30th Jan,2020

    10:00 am : 6000(1000 balance was
    already there and I
    credited 5000 so it become 6000)

    4 :00 pm : 4000( as I have debited RS
    2000)

    10:00 pm : 10000 ( I credited RS
    6000 again)

    Now, what is my day closing balance?

    Or the interest is given on average daily balance?

    Reply
    • Dear Avipsha,
      It’s as per my knowledge an average daily balance.

      Reply
  2. Good and systematic information.
    My point of interest is to know how does it impact MAV on interest calculation.

    Reply
  3. Ami SBI savings account e 1000000 taka rakhle monthly koto interest pabo???

    Reply
  4. How to calculate capital gain of mutual fund for sip

    Reply

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