How Savings Account Interest Is Calculated in India (2026)

How Banks Actually Calculate Your Savings Account Interest — and 5 Legal Ways to Earn More From the Same Balance

Quick Answer (40–60 words): Banks calculate savings-account interest on your daily closing balance — the "daily product" method, mandatory since 1 April 2010. Each day's balance earns that day's slice of interest, which is credited quarterly. Money parked even for a day counts. Rates range from 2.50% at large banks to ~7% on slabs at IDFC First and small finance banks (October 2026 snapshots). That small quarterly credit you shrug at costs money: how your balance is counted, when interest is credited, and which bank holds it can mean thousands of rupees a year on the same balance. Here is the verified math, plus five legal ways to make the same balance earn more.

Before 2010, Indian banks used a rule many found punishing: interest was paid on the minimum balance between the 10th and the last day of each calendar month. Money held from the 1st to the 9th earned nothing, and a single dip on the 15th dragged the whole month's interest down. On 24 April 2009, the Reserve Bank of India issued circular DBOD No. Dir. BC.128/13.03.00/2008-09: savings interest would be calculated on a daily product basis from 1 April 2010. Every day's closing balance now counts. Then, on 25 October 2011, the RBI deregulated savings deposit rates (DBOD.Dir.BC.42/13.03.00/2011-12), letting banks set their own rates for resident Indians instead of one RBI-fixed rate. Banks must offer a uniform rate on balances up to ₹1 lakh; above that, differential slab rates are allowed. That is why your choice of bank now matters far more than it did in 2010.

Interest for the month = (sum of each day's closing balance × annual rate ÷ 100) ÷ 365 A worked example: your account pays 3% p.a. In a 30-day month you hold ₹80,000 on days 1–20 and ₹1,20,000 on days 21–30. Daily products: (₹80,000 × 20) + (₹1,20,000 × 10) = ₹16,00,000 + ₹12,00,000 = ₹28,00,000 Monthly interest: ₹28,00,000 × 3 ÷ 100 ÷ 365 = ₹230.14 Your average daily balance was ₹93,333.33 — held at that average for a full year, the same math gives ₹2,800. Note two things: money held for part of the month earns its share (pre-2010, the ₹80,000 held from the 1st to the 9th would have earned nothing), and the timing of big deposits and withdrawals changes the number. A salary credited on the 2nd earns roughly 28 days of interest; credited on the 28th, about 2.

Since deregulation, rates are set by each bank, and the spread is enormous. Snapshots verified 20 October 2026 (banks revise rates without notice — confirm on the bank's own page before acting): - SBI: 2.50% p.a. flat across all balances (revised 15 Jun 2025; aggregator-sourced — Paisabazaar/Business Today — as SBI's own page was not fetchable). - HDFC Bank: 2.50% p.a. flat (official; revised 24 Jun 2025). ICICI Bank: 2.50% p.a. flat (official; from 26 Jun 2025). - IDFC First Bank: progressive slabs, from 1 Sep 2026 — 2.50% up to ₹3 lakh; 7.00% on ₹3–25 lakh; 6.25% on ₹25 lakh–₹5 crore; 5.00% above (official; Economic Times, Sep 2026). - AU Small Finance Bank: incremental slabs, from 1 Oct 2026 — 2.50% below ₹3 lakh; 2.75% on ₹3–5 lakh; 3.50% on ₹5–10 lakh; 6.50% on ₹10 lakh–₹25 crore (official rate PDF). - Equitas Small Finance Bank: incremental slabs, from 2 Feb 2026 — 2.50% up to ₹1 lakh; 2.75% on ₹1–5 lakh; 4.00% on ₹5–10 lakh; 6.10% on ₹10–50 lakh; 6.25–7.00% above (official). A nuance most explainers skip: slab rates apply only to the balance portion inside each slab, not your entire balance. ₹5,00,000 held a year at IDFC First earns (₹3,00,000 × 2.50%) + (₹2,00,000 × 7.00%) = ₹7,500 + ₹14,000 = ₹21,500 — an effective 4.30%, not 7%. An "up to 7%" headline and a 7% effective rate are very different things. On a steady ₹1,00,000 held one full year (exact arithmetic): - At 2.50% (SBI / HDFC / ICICI): ₹2,500 - At 3.50% (mid-tier illustration): ₹3,500 - At 7.10% (1-year sweep-in FD, Equitas snapshot): ₹7,100 The lowest-to-highest difference is ₹4,600 a year — same balance, no market risk involved.

The norm is quarterly: HDFC Bank's official rate page states "Savings Bank interest will be paid at quarterly intervals," and SBI's savings rules say the same — calculated daily, credited quarterly. IDFC First Bank and AU Small Finance Bank credit monthly, which carries a small compounding edge — interest paid in earlier starts earning its own interest sooner. On ₹1,00,000 at 7.00% p.a.: quarterly compounding gives an effective 7.1859% (₹7,186 a year); monthly gives 7.2290% (₹7,229). Difference: about ₹43 a year, illustrative. Small, but it costs nothing.

1. Consider a progressive-slab bank for the idle portion. A balance parked for months at 2.50% earns substantially more at IDFC First's 7.00% slab (₹3–25 lakh) or Equitas's 6.10–6.50% slabs (above ₹10 lakh) — with the same DICGC deposit-insurance framework (₹5 lakh per depositor per bank) that covers all scheduled banks. Confirm current rates before moving anything. 2. Switch on a sweep-in (auto-sweep) FD. The highest-leverage option for a buffer you keep "just in case": surplus above a threshold is swept into an FD earning FD rates (October 2026 1-year snapshots: 6.25% at HDFC/ICICI, 6.50% at IDFC First, 7.10% at Equitas), and sweeps back automatically when your balance dips. Verified terms — HDFC MoneyMaximizer: surplus above ₹1,25,000 swept into a 1-year-1-day FD (minimum ₹25,000); ICICI Money Multiplier: sweep FDs in multiples of ₹5,000 (minimum ₹5,000, default 1-year tenure), reverse-swept in ₹5,000 lots below ₹10,000. Idle buffer earns FD interest instead of savings interest, with no manual FD booking.

3. Use the daily-product rule in your favour. Every day's closing balance counts, so timing large flows matters at the margin: salary credited on the 2nd earns roughly 28 days of interest that month; on the 28th, about 2. If two payment dates are equally convenient, the later one earns a little more. And do not fear moving money — withdrawing ₹1,00,000 for 9 days at 2.50% costs only about ₹62 in lost interest. 4. Prefer monthly crediting where rates are otherwise equal. All else equal, a monthly-crediting account compounds slightly faster than a quarterly one — about ₹43 a year per ₹1,00,000 at 7%, as computed above. It costs nothing. 5. Treat the tax position as part of the return. Savings interest is taxable at slab rate, but Section 80TTA lets under-60 individuals and HUFs deduct up to ₹10,000 a year; senior citizens get up to ₹50,000 under 80TTB (savings + FD + RD interest), but cannot claim both. Both are old-regime-only — under the new regime (115BAC) neither applies, so the effective return differs by bracket. And unlike FD interest, no TDS is deducted on savings interest at any amount — versus 10% TDS on FD interest above ₹50,000 a year (₹1,00,000 for seniors) since 1 April 2025. On ₹10,000 of savings interest, the 80TTA deduction saves ₹3,120 in tax at the 30% slab (including 4% cess) — worth including in any honest rate comparison. Terminology footnote: under the Income Tax Act, 2025 (from 1 April 2026), 80TTA/80TTB were renumbered into Section 153 and TDS provision 194A into Section 393. Rates and thresholds are unchanged — only the section numbers moved.

Savings interest is fully taxable as "income from other sources" at your slab rate — no blanket exemption exists. What exists is the ₹10,000 deduction (80TTA, under-60 individuals and HUFs) or ₹50,000 (80TTB, senior citizens), old-regime-only. Interest must be reported in your return and reconciled with your Annual Information Statement (AIS). Our site's tax section carries a detailed walkthrough of the mechanics. For NRO/NRE accounts, eligibility has nuances — check with a tax adviser before assuming.

Nominal rates are only half the story. With the repo rate at 5.50% (the RBI's October 2026 decision) and retail inflation at 5.54% in September 2026 — the RBI projects 5.2% for FY27 — a 2.50% savings rate is negative in real terms: roughly −3.0% before tax (at a 30% slab, the post-tax return is just 1.75%). A savings account is a parking bay, not a growth engine — which is exactly why the five options above matter.

Sources: RBI circular DBOD No. Dir. BC.128/13.03.00/2008-09 (24 Apr 2009) — daily-product basis from 1 Apr 2010; RBI directive DBOD.Dir.BC.42/13.03.00/2011-12 (25 Oct 2011) — savings-rate deregulation; HDFC Bank savings-account interest rates page (official, revised 24 Jun 2025); ICICI Bank savings-account FAQ (official, 2.50% p.a., effect from 26 Jun 2025); IDFC First Bank savings interest-rate page (official, slabs effective 1 Sep 2026); AU Small Finance Bank "Rates at a Quick Glance" (official PDF, effective 1 Oct 2026); Equitas Small Finance Bank EVA savings page (official, slabs w.e.f. 2 Feb 2026); Economic Times savings-rate and FD-rate roundups (Sep–Oct 2026); HDFC Bank MoneyMaximizer page (official); ICICI Money Multiplier FD (official); ClearTax — TDS under Section 194A; TaxGuru — Sections 80TTA/80TTB; MoSPI September 2026 CPI (5.54%, released 12 Oct 2026); RBI October 2026 MPC statement (repo 5.50%, FY27 CPI forecast 5.2%).

This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.