What is the rate of interest that I will earn?
Interest rates vary from time to time and are based on the RBI's policies. At present banks offer a rate of 4 to 6% on savings accounts.
How often will the interest be paid to me?
Some banks pay interest on a quarterly basis while others pay on a half-yearly basis. The interest will be credited into your account directly.
How is interest calculated?
Interest on a savings bank is calculated based on the daily balance method; which essentially means that you earn interest on the closing balance in your account each day. So if you have Rs 5 lakh in your account for the first 10 days, Rs 2 lakh for the next 10 days and Rs 50,000 for the last 10 days, interest will be calculated for Rs 5 lakh for the duration you had that much money in the account and so on and so forth. This method was put into practice by the Reserve Bank of India (RBI) in 2010 to give customers more benefit. Before this, the interest rate was a standard 4% across all banks, calculated against the lowest balance in the account between the 10th and the final day of the month.
Is the interest earned on savings banks accounts taxable income?
Not completely. Even though the interest earned on savings banks accounts is not subject to Tax Deduction at Source (TDS), it is exempt to taxes only up to the amount of Rs 10,000 in a year. If the interest you earn from your savings account is higher than Rs 10,000, it is subject to tax.