Synopsis– This article provides information about how some banks in India now provide monthly interest on savings accounts instead of quarterly interest. It will discuss the benefits of this shift, how interest is calculated, the banks that offer a monthly payout, comparisons of interest rates banks are offering, points to consider, and how to decide which account is appropriate.
Introduction
Traditionally, Indian banks credited interest for savings accounts quarterly, which is the norm of the RBI. In recent times, some private and small finance banks offer monthly payouts – either as the default option or by way of making it an opt-in. These banks pay interest monthly, which allows customers quicker access to interest, improved cash flow and better compounding. This article will address all of these banks, their advantages, disadvantages and important factors to consider.
Why Monthly Interest Payout Matters
- Compounding advantage: With monthly credits, interest works compound quickly by adding to your balance before it starts to earn interest on the next credit. This makes a small but consistent positive contribution to total growth.
- Improved Cash Flow: A monthly credit provides a constant cash flow within your account, which best meets your day-to-day expenses and bill payments while providing predictability for short-term budgeting, rather than waiting for a quarterly payout.
How Savings Interest is Calculated and Paid
- Daily calculation method: Interest on savings accounts is calculated daily for all banks based on the end-of-day balance, in accordance with the RBI. The applicable rate is dependent on the bank’s slab structure.
- Role of payout frequency: Payout frequency modifies the credited date of the accumulated interest. In quarterly payout terms, the bank credits interest for three months at once. In monthly payout terms, the same amount would be credited each month.
- The effect of payout frequency on total earnings: You will have quicker access to your money, and if you leave the interest in the account, you will benefit slightly from the compounding benefit, which in effect amounts to greater accumulated interest over the period. The total annual interest will generally remain the same.
Banks Offering Monthly Interest Payouts
1. IDFC FIRST Bank
- First bank to credit monthly interest, and all savings accounts will have this as a default.
- Interest will be calculated every day, then credited at the end of the month automatically.
- Appealing rates of ~ 7% per annum.
2. RBL Bank
- From May 2025, the interest on the savings will be credited once a month.
- Depending on the slab balance, interest rates go to 6.75% per annum.
3. AU Small Finance Bank
- Monthly payout is an opt-in (not the default).
- Rapid savings rate, i.e.7.25% per annum.
Also read: E-Rupee: How India’s Digital Currency is Reshaping the Future of Payments
4. YES Bank
- The default remains quarterly; customers can opt in and have it credited each month.
- Interest rates are at 5% per annum.
5. Jana Small Finance Bank
- Monthly or quarterly, depending on the account type.
- Some premium accounts will pay interest of 7.5% per annum.
6. IndusInd Bank
- Certain premium accounts will receive savings credited monthly, i.e., the rest remains quarterly.
- Rates for these accounts are roughly around 5% per annum.
Comparison Table
| Bank | Payout Type | Approx. Interest Rate |
|---|---|---|
| IDFC FIRST | Monthly (default) | Up to 7% |
| RBL Bank | Monthly (default) | Up to 6.75% |
| AU SFB | Monthly (opt-in) | 7.25% |
| YES Bank | Monthly (opt-in) | Up to 5% |
| Jana SFB | Monthly/Quarterly | Up to 7.5% |
| IndusInd Bank | Monthly (specific types) | Around 5% |
Key Considerations Before Choosing
- Cash flow needs: If you rely on interest income to meet some monthly expenses, a monthly payout would be only a modest source of income—but a predictable one.
- Minimum balance: Most accounts that pay higher interest, or monthly interest, require maintaining a greater average balance to avoid fees.
- Interest slabs: Examine how rates differ across balance slabs or account types. Higher rates may only pertain to certain slabs.
- Bank safety: Decide how comfortable you are with the safety and reputation of a bank—private vs. small finance banks.
- Impact on rates: Make sure that monthly payout options don’t affect the applicable rate.
- Overall features: Don’t just look at payouts. Consider the quality of digital banking, easy fund transfer, branch access, online fees, etc., before deciding.
Conclusion
Monthly interest payments provide liquidity and cater to people’s desire for more frequent income. Monthly interest payouts are part of the products offered by IDFC FIRST, RBL and the product default from AU SFB, YES Bank, Jana SFB and IndusInd SFB. Always read the terms and ensure they meet your expectations before investing.
Written by N G Sai Rohith
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