Your Savings account in India will earn you more from now on!

In a measure that would bring cheers to savings accounts holders in India, RBI (Reserve Bank of India) has asked the banks to start calculating interest rates on these accounts on daily basis from April 1.

The move will enable saving accounts holders to earn better interest income on deposits since banks currently calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month. But, under the new system, even if he withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.

‘‘We advise that payment of interest on savings accounts may be made by banks on a daily product basis with effect from April 1," RBI said in a notification, asking banks to ensure a smooth transition and work out the modalities in this regard.

RBI had proposed the new system in its credit policy for April, 2009-10. In the statement RBI had said, ‘‘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."

RBI had said that 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," the Reserve Bank said

However, earlier banks had urged RBI to postpone the move. ‘‘We requested them to either reduce the savings rate or postpone the implementation. It will affect our margins and profit, Indian Banks Association chairman MV Nair had said.

However, RBI insisted to implement the new modalities. Banks pay an interest rate of 3.5% on the savings account deposits.

Currently, interest rates on saving accounts are de-regulated, barring up to Rs 2 lakh. The RBI only administer interest rates on saving bank deposits up to Rs 2 lakh, and for the deposits above this amount, banks are free to give any interest rates.