RBI allows banks to pay interest at shorter intervals

RBI allows banks to pay interest at shorter intervals Mumbai: Savings bank account and term deposit holders can now earn interest at shorter intervals, with the Reserve Bank Tuesday allowing banks to revise the periodicity of interest payments.

"As all commercial banks are now on core banking platforms, it has been decided to give banks the option to pay interest on savings deposits and term deposits at intervals shorter than quarterly intervals," RBI Governor Raghuram Rajan said in its Second Quarter Review of Monetary Policy 2013-14.

Presently, banks are required to pay interest on savings and term deposits at quarterly or longer intervals.

The savings deposit rate for most banks is 4 percent per annum, while in some cases, it is as high as 7 percent. The interest rate on savings bank accounts is calculated on a daily basis. Term deposit rates are 8-9 per cent for tenures of one year and above.

In 2011, the RBI 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, the 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.