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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

Mr. Iyer holds a savings bank account with a scheduled commercial bank. His balance moved several times during the month. Under RBI directions, how must the bank calculate interest on his savings deposit?

Banks must compute savings account interest on a daily product basis, applying the rate to each day's end-of-day balance. The interest must be credited at least once a quarter. The older method of using the lowest balance between the 10th and month-end has been discontinued.

  1. AOn the lowest balance between the 10th and the last day of the month
  2. BOn the average of the opening and closing balances of the month
  3. COn the daily product basis, using the end-of-day balance, with interest credited at least quarterlyCorrect
  4. DOn the balance at the start of each quarter, credited annually

Explanation

RBI requires savings deposit interest to be calculated on a daily product basis, on each day's closing balance. The bank must credit it at least quarterly. The 10th-to-month-end lowest balance method was the old practice and is no longer permitted.

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