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🔹 What is Interest in a Savings Account?

Interest is the extra money the bank pays you for keeping your savings in their account. It is calculated as a percentage of your account balance.

Example: If you keep ₹10,000 in your savings account and the bank gives 4% interest per year, you will earn ₹400 in a year (before tax).

🔹 How is Interest Calculated?

1. Interest Rate – Each bank offers different rates (usually 2.5% – 7% per year in India).

2. Daily Balance Method – Nowadays, interest is calculated on your daily closing balance.

3. Quarterly / Monthly Credit – The bank usually adds the earned interest to your account quarterly (every 3 months) or monthly.

🔹 Formula for Interest:

\text{Interest} = \text{Principal (balance)} \times \text{Rate of Interest} \times \text{Time}

Example:

Balance = ₹50,000

Interest Rate = 4% per annum

Time = 1 year

\text{Interest} = 50,000 \times 4\% = ₹2,000

🔹 Factors Affecting Interest Earnings

1. Bank’s Rate – Different banks give different rates.

2. Type of Savings Account – Premium or digital accounts may offer higher rates.

3. Balance Maintained – Higher balances may earn higher interest in some banks.

4. Reserve Bank Guidelines – RBI policies influence how much banks can offer.

🔹 Current Average Interest Rates (India 2025)

Public Sector Banks – 2.7% to 3.5% p.a.

Private Banks – 3% to 6% p.a.

Small Finance Banks – 4% to 7% p.a.

🔹 Tax on Interest Earned

Interest from savings accounts up to ₹10,000 per year is tax-free under Section 80TTA (for individuals below 60 years).

Senior citizens get tax-free interest up to ₹50,000 under Section 80TTB.

Anything above these limits is taxable as “Income from Other Sources”.

🔹 Benefits of Interest Earnings

Extra money without risk.Encourages saving habits.Safer than keeping cash at home.