May Be most of you know this but hope this will help to others who doesn't have any idea about this.
Check your SavingsAccount to See How Interest Gets Credited
Howmany of us have actually checked our savings account to see how much interestgets credited into our account for the deposits we make? A lot of people mightknow the answer to this one.
Nowlet's change the question to "How many of us know the way interest iscalculated and credited into our account?" Not too many. The answer tothis one will surprise many depositors and a bigger surprise is that crores ofrupees are lost through millions of savings accounts in our country. Thenumbers as you will see are staggering.
Thereare an estimated 320 million savings accounts in the various commercial banks.As per the RBI Bulletin, savings bank deposits were approximately Rs 4, 30,000crore (Rs 4,300 billion). Most of the banks in the country pay interest to youon the minimum balance held between the 10th and 30th/31st of every month. Wehave picked samples from nationalized, private and foreign banks in the countryto take a broad representation of most banks.
Nowlet's suppose you have nil in your account as on April 10. On April 11th youdeposit Rs 100,000 in your account. If you withdraw the funds on May 31st,there is no interest paid to you for the entire term of 51 days.
Youmay wonder why but the reason according to the bank's calculation is that theminimum balance between April 10 (nil) and April 30 (Rs 100,000) is nil, so nointerest is paid for April. Similarly between May 10 (Rs 100,000) and May 31st(nil), the minimum balance is nil and hence you earn no interest for May aswell.
Basicallyit implies that the bank gets to use your money for 51 days free of cost.Therefore, the bank has the option of leveraging these zero-cost funds and lendthem at higher rates of interest. This is one of the most important sources oftheir profits.
Atthe same time a sharp cookie will deposit Rs 100,000 on April 10th instead ofApril 11th and remove the money on May 1st. The minimum between April 10th andApril 30th now is Rs 100,000 and hence he gets 3.5 per cent a year for justkeeping the money for 20 days. This is equivalent to a yield of 5.425 per cent.
TheRBI is well aware of this but nothing has been done about this practice. At theend of the day it's the depositor who bears the brunt of this faulty interestcalculation practice.
Thequestion to ask is that in the area of technological sophistication is itnecessary to continue with this outdated method of interest calculation for theconvenience of banks but at the cost to the depositor? This shows that the aamadmi'sinterests like always clearly take a backseat.
Sowhat should you do to maximize the interest you earn on bank deposits?
Makedeposits in your savings account before or on the 10th of every month.
Ensurethat you withdraw any funds only after the 31st or the last day of every month.
Checkyour bank statements carefully to ensure that interest payments are properlycredited into your account.
Moreimportantly leave bare minimum funds in your savings account to pay for monthlyexpenses and immediate payments and move the rest in short term fixed deposits.This way you have liquidity and at the same time you continue to earn higherinterest. Better yet, park funds in higher interest rate fixed deposits, andtake an overdraft against the deposit for any contingencies.
