Calculating Interest on Savings Account: Here’s Everything You Should Know

A savings account is one simple approach to save and grow your money. The deposit account has many user-friendly features, and one can open a savings account online with a bank to avail of the benefits.

One significant benefit of a savings account is the interest earned on funds held in the account. Most banks are permitted to set their rates following RBI guidelines. However, most individuals are confused and do not know how to calculate interest on a savings account.

This article will discuss how the interest is calculated on the savings account.

How to Calculate Interest on a Savings Account

The interest on savings is computed based on the daily outstanding balance, as per the Reserve Bank of India guidelines in 2010. In other words, an individual receives interest on the total balance in his account at the end of each day. The formula used to calculate the interest on a savings account is as follows:

Interest on savings account= Daily balance*Rate of interest* (No. of days/365)

Let’s look at an example to assist you to grasp it better.

On Day 1, suppose Mr Deepak has Rs.1 lakh in his account. After seven days, he withdraws Rs.50,000. On the 14th day, he deposits Rs.30,000. There are no further transactions after that. Let’s assume the interest rate is 5%. Now, look at how the interest rate is calculated for March month.

Date Opening Balance Deposit Withdrawal Outstanding


100,000 100,000


100,000 50,000 50,000


50,000 30,000 80,000


80,000 80,000

The interest calculations are as under:

  • The total balance was Rs.100,000 from 01/03/2022 to 06/03/2022. Thus, for seven days, the interest is computed on Rs.100,000, which is:

100,000*5/100*7/365 = Rs. 95.89

  • The remaining balance is Rs.50,000 from 07/03/2022 to 14/03/2022, on which interest will be calculated for seven days period as :

50,000*5/100*7/365 = Rs. 47.95

  • The remaining balance was Rs.80,000 from 14/03/2022 to 31/03/2022. The interest computed for 18 days is as:

80,000*5/100*18/365 = Rs. 197.26

Now, the total interest earned on the savings account at the end of March is:

95.89 + 47.95 + 197.26 = Rs. 341.1

Thus the total interest earned by Mr Deepak for March is Rs. 341.1.

You may also perform the calculations using an online savings account interest calculator. The tool is simple to use and delivers accurate results.

How To Use a Savings Account Interest Calculator?

To use a savings account interest calculator, you need to enter the following details:

  • Type of account you have with a bank
  • The balance sum in your savings account
  • The interest rate offered by the bank

You will also have to decide whether the interest earned is credited monthly, quarterly, semi-annually, or annually. This allows you to calculate the interest rates on your savings account quickly. Notably, the interest rate changes every day and is determined by the amount of money in your account.

Most people utilise savings accounts online to get banking services. However, if properly managed, a savings account might be your first step toward financial security. You can use the account to save money and generate interest on it without any difficulty.