Reserve Bank has asked banks to pay interest on savings banks account on quarterly basis or shorter duration, a move which will benefit crores of savings account holders.
At present, the interest is credited in savings bank account on half-yearly basis. Interest rate on savings bank account is calculated on daily basis since April 1, 2010.
"Interest on savings deposit shall be credited at quarterly or shorter intervals (on domestic savings deposits)," RBI said in a master circular issued on March 3.
While public sector banks offer 4 percent interest on savings deposit, private players offer as much as 6 percent.
In 2011, the central bank had decided to give freedom to commercial banks to fix savings bank deposit rates, the last bastion of the regulated interest-rate regime. While giving banks this freedom, RBI had said a uniform rate will have to be offered on deposits of up to Rs 1 lakh.
On higher amounts, banks are allowed to offer differential rates to depositors.
According to analysts, the lower is periodicity, the higher will be the benefit to savers. Banks will have to shell out more to customers.
As per estimates, the lower periodicity of interest payment may put a burden of Rs 500 crore on banks.
Earlier, banks used to give interest of 3.5 percent on savings accounts on the basis of the least deposit in an account between the 10th and the last day of each month.