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Effect of Saving Rate Deregulation:


Recently Reserve bank of India,deregulate the saving account interest rates.Banks can pay you 6% as well 1% on your money lying in saving account.

This post is  a small attempt to calculate the effect for different saving rates,with an assumption that Rs.1 Lakh are constantly available in the bank account.

Saving Rate: 6%

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Total Interest Paid annually(Rs)
1,00,000 6 Daily 6.0447 6,183

Saving Rate: 5% 

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Total Interest paid annually
1,00,000 5 Daily 5.031 5,126

Saving Rate:4%

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Interest paid annually
1,00,000 4 Daily 4.0198 4,080

 Saving Rate: 3%

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Interest paid annually
1,00,000 3 Daily 3.0112 3,045

Saving Rate:2%

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Interest paid annually
1,00,000 2 Daily 2.005 2,020

Saving Rate: 1%

Amount(Rs) Interest Rate(%pa) Interest Payment frequency Converted Interest rate for Quarter. Interest paid annually
1,00,000 1 Daily 1.0012 1,005

Today interest rate cycle is in bullish phase and saving bank interest rates will be higher or at least will remain constant.But when it turn to bearish in future,banks are free to offer min interest rates so saving interest rate deregulation looks more in interest of banks than that of common man.

 



Category: Fixed Income

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2 Responses

  1. This is a wonderful post. This move will render the banking sector more competitive in India, which is required by any developing economy. But more than the technical part of this, the governance part of this model will be more critical. Interesting to see how this will work out in the future.

    • admin says:

      I think peoples do not care much about saving interest rates..Its very inconvenient to change bank just because it offeres less interest on saving and banks know that well.so i do not think there will be much fluctuation in saving rates.If in future KYC portability comes then picture may be different.

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