First, it is important to know that it is not possible to calculate the bank interest rate on your own. The rate is fixed by the bank based on its internal policies. However, you can calculate the amount of interest that you will receive when you keep your money in a savings account or when you invest it in a fixed deposit. It is simple to do this. All you need to know is the existing interest rate that your bank or financial institution offers and use online or manual calculators to calculate how much money you will earn as interest.
Interest on savings accounts
Earlier, the RBI had laid down a uniform interest rate on savings accounts for all banks which meant that there was no difference in the amount you earned as interest, regardless of which bank you had your money in. However, the RBI now allows banks to set their own interest rates for money held in savings accounts. This has led to greater competition, and while some banks offer 5-7% per annum, many banks in India offer an interest rate of 4% on savings accounts.
If, for instance, if you have Rs 50,000 in a savings account and your bank offers an interest rate of 4% per annum, you will earn Rs 2000 a year in interest. (4% of 50,000 = 2000.) You can use a calculator to learn what you will receive for a particular sum, for a specific tenure and interest rate.
In addition, now the interest is calculated on the basis of the daily balance in your account as opposed to the earlier system which was calculated based on the minimum amount you had in your account in the month. So now you earn money for every rupee that you keep in your account.
The interest earned on money in a savings account is usually paid out twice a year and credited to your account directly.
Bank interest rate on fixed deposits
The main purpose of having a fixed deposit (FD) is to enable individuals to earn a higher rate of interest on their surplus funds than they would earn in a savings account. A fixed deposit is one of the safest ways you can invest your money. The interest you earn may be relatively low compared to other forms of investment, but it is a risk-free option. A fixed deposit is a good option if you are looking for a regular, fixed return on available money.
You can calculate the amount of interest you will earn on an FD by using online interest calculators that are available on most bank websites. All you have to do is input the deposit amount, the number of days, and the interest rate. You will learn how much you will receive as interest on the maturity date. This will help you plan your personal budget.
Fixed deposits are offered by banks and non-banking financial institutions as well as corporates. The interest rate offered vary based on the tenure of the deposit, the amount you deposit and the interest rate offered by the bank depending on their internal policies and government regulations. For example, senior citizens enjoy a higher interest rate on FDs.
Similarly, each bank has its terms regarding minimum amounts and the minimum period the money is to be deposited. Alternatively, if you are not in need of the periodic interest payments and want to gain higher returns, you can reinvest the interest and enjoy the benefits of compounding. This way you earn interest not just on your original deposit amount, but also on the interest you have received on it.