What Is Savings Account Interest?
Savings account interest is the amount a bank pays you for keeping money in your savings account, calculated as a percentage of your balance on a daily basis. In India, banks use the daily balance method as mandated by the Reserve Bank of India since April 2010.
Your money does not sit idle in a savings account. The bank uses those deposits to lend to borrowers, and a portion of the interest earned on those loans is passed back to you. The RBI sets the repo rate, which acts as a benchmark. When the repo rate changes, banks typically adjust their savings account interest rates within a few weeks.
Savings account interest rates in India range from 2.50% to 4% for most public and private sector banks. Small finance banks and digital banks often offer higher rates, reaching up to 6% per annum. Unlike fixed deposits, the rate can change at any time based on the bank's discretion and RBI policy.
Savings Account Interest Formula: Daily Balance Method
The daily balance method uses this formula to calculate interest:
Daily Interest = (Daily Balance x Rate of Interest) / 365| Variable | Meaning |
|---|---|
| Daily Balance | Closing balance in the account at end of day |
| Rate of Interest | Annual interest rate offered by the bank (e.g., 3%) |
| 365 | Number of days in a year (366 in a leap year) |
| Daily Interest | Interest earned for that single day |
For compound interest projections over longer periods, this calculator uses: A = P x (1 + r/n)^(n x t), where A is the maturity amount, P is the principal (account balance), r is the annual interest rate, n is the number of compounding periods per year, and t is the time in years. Daily compounding with n=365 most closely reflects how Indian banks calculate interest.
Daily Balance Method Explained
Under the daily balance method, interest is calculated on the closing balance of your savings account at the end of each calendar day. This replaced the earlier monthly balance method, where interest was calculated on the lowest balance between the 10th and last day of each month.
| Method | How it works | Impact on depositor |
|---|---|---|
| Daily Balance (current) | Interest on each day's closing balance | Better for depositors. Every rupee earns interest every day. |
| Monthly Balance (old) | Interest on the lowest balance between 10th and last day | Worse for depositors. Mid-month deposits earned no interest that month. |
The RBI circular of April 2010 made the daily balance method mandatory for all scheduled commercial banks in India. This change was significant because it ensured that money deposited on any day of the month would start earning interest from that same day, rather than waiting for the next calculation cycle.
Interest Calculation Example with Real Numbers
Consider a savings account with a balance of Rs 1,00,000 earning 3% per annum. The daily interest rate is 3% divided by 365, which equals 0.008219% per day. The daily interest amount is Rs 1,00,000 multiplied by 0.008219%, which equals Rs 8.22 per day.
| Period | Daily Interest | Quarterly Total | Yearly Total |
|---|---|---|---|
| Rs 1,00,000 at 3% | Rs 8.22 | Rs 739 | Rs 2,956 |
| Rs 5,00,000 at 3% | Rs 41.10 | Rs 3,699 | Rs 14,795 |
| Rs 10,00,000 at 3.5% | Rs 95.89 | Rs 8,630 | Rs 34,521 |
| Rs 25,00,000 at 4% | Rs 273.97 | Rs 24,658 | Rs 98,630 |
With compound interest over multiple years, the numbers grow. At 3% per annum compounded daily, Rs 1,00,000 grows to Rs 1,03,045 in one year, earning Rs 3,045 in interest. Over 5 years, the same balance would grow to approximately Rs 1,16,183, earning Rs 16,183 in cumulative interest.
Savings Account vs Fixed Deposit
A savings account is designed for everyday transactions and offers complete liquidity with lower interest rates. A fixed deposit locks your money for a fixed period and offers significantly higher returns. The choice depends on whether you need immediate access to your money or can afford to lock it away.
| Feature | Savings Account | Fixed Deposit |
|---|---|---|
| Interest rate | 2.5% to 4% | 6% to 7.5% |
| Liquidity | Full, withdraw anytime | Locked for the tenure |
| Interest calculation | Daily balance, credited quarterly | Quarterly compounding, paid at maturity |
| Minimum balance | Rs 0 to Rs 10,000 (MAB) | Rs 1,000 to Rs 10,000 |
| Tenure | No fixed tenure | 7 days to 10 years |
| Tax | Taxable under 80TTA (Rs 10k deduction) | TDS at 10% if interest exceeds Rs 40k |
| Insurance cover | Up to Rs 5 lakh per bank (DICGC) | Up to Rs 5 lakh per bank (DICGC) |
| Best for | Emergency funds and daily expenses | Surplus savings and specific goals |
For the same principal of Rs 1,00,000 over 1 year, a savings account at 3% earns approximately Rs 3,000 in interest. A fixed deposit at 7% earns approximately Rs 7,000. The difference becomes more pronounced over longer periods. Use our FD Calculator to compare fixed deposit returns.
Current Savings Account Interest Rates in India
Savings account interest rates vary across banks. Here are the current rates offered by major Indian banks as of June 2026. Rates are subject to change based on RBI monetary policy and individual bank decisions.
| Bank | Interest Rate (p.a.) | Balance Tier |
|---|---|---|
| State Bank of India (SBI) | 2.70% | Below Rs 50 crore |
| HDFC Bank | 2.50% | Up to Rs 50 lakh |
| HDFC Bank | 3.00% | Above Rs 50 lakh |
| ICICI Bank | 2.50% | Up to Rs 50 lakh |
| ICICI Bank | 3.00% | Above Rs 50 lakh |
| Axis Bank | 2.50% | Up to Rs 50 lakh |
| Axis Bank | 3.00% | Above Rs 50 lakh |
| Kotak Mahindra Bank | 3.00% | Up to Rs 10 lakh |
| Kotak Mahindra Bank | 3.50% | Above Rs 10 lakh |
| Yes Bank | 3.25% | Up to Rs 1 crore |
| AU Small Finance Bank | 5.00% | Up to Rs 1 lakh |
| AU Small Finance Bank | 6.00% | Above Rs 1 crore |
| Equitas Small Finance Bank | 5.50% | All balances |
| Jana Small Finance Bank | 6.00% | Up to Rs 1 lakh |
| Post Office Savings Account | 4.00% | All balances |
Small finance banks and post office savings accounts offer higher rates than traditional commercial banks. However, deposits with all scheduled commercial banks and small finance banks are covered by DICGC insurance up to Rs 5 lakh per depositor per bank. The post office savings account is backed by the Government of India.
Tax on Savings Account Interest (Section 80TTA)
Interest earned on your savings account is taxable as income from other sources under the Income Tax Act, 1961. You must report it in your annual income tax return. However, the bank does not deduct TDS on savings account interest, unlike fixed deposits where TDS is deducted if the interest exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens).
Under Section 80TTA, individuals and HUFs can claim a deduction of up to Rs 10,000 per financial year on interest income from savings accounts. This Rs 10,000 is the aggregate interest from all savings accounts held across banks and post offices. Any interest above Rs 10,000 is added to your total income and taxed as per your applicable income tax slab rate.
For senior citizens, Section 80TTB provides a higher deduction of up to Rs 50,000 per financial year on interest income from deposits, which includes savings accounts, fixed deposits, and recurring deposits. This makes savings accounts particularly tax-efficient for senior citizens with significant deposit holdings.
Limitations of Savings Account Interest
How to Use This Savings Account Interest Calculator
This calculator projects the interest earnings on your savings account balance over time. Here is how to use each input:
- Account Balance: enter the amount you currently hold in your savings account. The slider ranges from Rs 500 to Rs 50,00,000. Click the value to type a precise number.
- Interest Rate: set the annual interest rate offered by your bank. Typical Indian savings account rates range from 1% to 8%. Most major banks offer between 2.5% and 4%.
- Time Period: choose between years or months using the toggle. Use the preset buttons (6mo, 1Y, 3Y, 5Y, 10Y) to switch common durations instantly.
- Compounding Frequency: select how often interest compounds. Daily compounding (n=365) most accurately reflects how Indian banks calculate savings account interest. Monthly, quarterly, and annual options let you compare different methods.
The dark result boxes show your total interest earned and the maturity amount. The donut chart visualises the proportion of principal versus interest earnings. Expand the year-by-year table to see how compounding builds your balance at each milestone. The Effective Annual Rate (EAR) shows the true annual return accounting for compounding frequency.
Frequently Asked Questions
Disclaimer: All calculations on this page are indicative only and are based on the inputs provided. Actual interest earned may vary based on the exact daily balance, the day of deposit and withdrawal, leap years, and any changes in interest rates by the bank during the calculation period. The calculator assumes a constant interest rate throughout the selected period. This calculator is for educational and planning purposes and does not constitute financial advice. Consult a SEBI-registered financial adviser before making investment decisions.