savings a/c will fetch you more interest

                   The absence of TDS will be a big draw for high net worth individuals, who have been parking short-term surpluses in mutual funds. Interest income of over Rs 10,000 earned from bank fixed deposits per annum is taxed at the rate of 10%. But interest income over Rs 10,000 each year earned from savings account will not be taxed. 
                     Since returns on these deposits are not subject to tax deduction at source (TDS), high net worth individuals may choose these accounts over other short-term instruments such as mutual funds and term deposits, banks reason.
                     The interest on savings accounts remains unchanged at 3.5%, depositors will earn more interest income from these accounts from 1st April ,10.

Notification :

Sub:Payment of Interest on Savings Bank Account on a Daily Product Basis 

RBI/2008-09/452

DBOD. No. Dir. BC.128/13.03.00/2008-09

April 24, 2009

All Scheduled Commercial Banks (Excluding RRBs)

Dear Sir

Payment of Interest on Savings Bank Account on a Daily Product Basis

Please refer to paragraph 88 of the Annual Policy Statement announced by Governor on April 21, 2009 (extract enclosed), in terms of which it has been proposed that payment of interest on savings bank accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010. In terms of extant guidelines, as per paragraph 2.2B of the Master Circular dated July 1, 2008 on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts, banks have been advised that in the case of savings deposits, interest should be calculated on the minimum balance to the credit of the deposit account during the period from the 10th to the last day of each calendar month and credited to the account only when it is Re.1/- or more. Several banks had suggested that interest on savings bank accounts may be calculated either on the minimum balances in the deposit accounts during the period from the first to the last day of each calendar month or on a daily product basis. The matter was referred to the Indian Banks' Association, which was of the view that payment of interest on a daily product basis would be feasible only when computerisation in banks is completed. 2. We advise that on a review, and in view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that payment of interest on savings bank accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010. In order to ensure a smooth transition, banks may work out the modalities in this regard.

Yours faithfully

(P. Vijaya Bhaskar) Chief General Manager

Encl: as above

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