“Interest Rate on Savings Account - No Change

In the recent years, banks have been given freedom in fixing interest rates on various
deposit liabilities, and flexibility in offering interest rates depending upon tenor and size
of deposits with the approval of their Boards. The only interest rate on deposits side,
which is regulated by RBI is on 'savings account' with cheque facility. This rate is at
present 4.0 per cent per annum.
However, although the nominal interest rate is 4.0 per cent per annum, the yield on such
deposits works out to 3.4 per cent per annum only as interest is payable on the minimum
balance between tenth and last day of each month. Nearly four-fifths of such saving
deposits are held by households.
In view of the present deregulated interest rate environment and the reduction in interest
rates on Government’s small savings schemes in the recent period, there is an apparent
case for deregulation of interest rates on savings account also. However, considering the
fact that bulk of such savings deposits are held by households, including households in
rural and semi-urban areas, on balance, it is not considered as opportune time to
deregulate the interest rate on savings account for the present. In any case, the present
effective yield of 3.4 per cent is quite reasonable in relation to other prevailing interest
rates on even short-term instruments.”
2. Effect of interest computation methodology on yield
RBI mentions that the effective yield is 3.4% when the declared rate of interest