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Savings Account

How to Calculate Interest on Savings Account & Maximise Your Earnings

Key Takeaways

Find out how to calculate interest on a savings account, and which method to use
Learn why monthly credits are important for earning more interest, and frequently too
A high-interest savings account is subject to the balance slab you fit into
How IDFC FIRST Bank combines high-yield with robust digital experience, transparent terms and exclusive rewards

09 Apr 2026 by Team FinFIRST

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People maintain a savings account primarily for safety, liquidity and convenience. Savings accounts have traditionally offered a low interest rate. Therefore, income from a savings account has never been a reason for maintaining the account. However, this changed with the RBI deregulation of bank interest rates.

Banks now offer tempting savings account interest rates which compete with recurring deposits and even fixed deposits. This means more customers are now keen to earn interest income and understand how to calculate interest on a savings account.

Without further ado, let us therefore understand how to calculate interest on a savings account and whether we can earn a high rate of interest on our savings account balance.

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Monthly vs. quarterly interest: What's best for your high-interest savings account

Understanding how to calculate interest on a savings account

The widely used method of calculating the savings account interest rate is using daily balance method. Under this method, interest is calculated on the closing balance each day, and it is accumulated and credited once every quarter or month.

However, this was not always how banks calculated interest on savings accounts. The method most commonly used years ago was the minimum balance method. Let us also briefly understand how to calculate interest on a savings account under this method.

Minimum balance method:

Under the minimum balance method, interest was calculated on the lowest daily closing balance on any day between the 10th and the last day of the month. It is easy to assume that this method was unfair for customers in specific circumstances. Besides, it discouraged transactions, particularly withdrawals after the 10th of each month.

Example: Let us assume that your balance for the first 11 days of the month was ₹1,000. On the 12th day of the month, you deposited ₹99,000 and made no withdrawals during the remainder of the month. Under the minimum balance method, the bank would consider the minimum balance between the 10th and the end of the month, which was ₹1,000. Despite maintaining a balance of ₹1,00,000 for 19 or 20 days, the interest would be calculated on the paltry sum.

Fortunately for customers, banks gradually shifted to the much fairer daily balance method.

How to calculate interest on a savings account under the daily balance method

The formula used to calculate interest under the daily balance method is:

Daily interest = (Closing balance X Interest rate) / 365

Example:

Date	Daily balance	Interest rate	Interest calculation	Day's interest
01-Jan-26	19,443	6%	(19443 X 6%) / 365	3.20
02-Jan-26	37,712	6%	(37712 X 6%) / 365	6.20
03-Jan-26	11,306	6%	(11306 X 6%) / 365	1.86
04-Jan-26	53,886	6%	(53886 X 6%) / 365	8.86
05-Jan-26	28,244	6%	(28244 X 6%) / 365	4.64
06-Jan-26	10,155	6%	(10155 X 6%) / 365	1.67
07-Jan-26	17,633	6%	(17633 X 6%) / 365	2.90
08-Jan-26	18,139	6%	(18139 X 6%) / 365	2.98
09-Jan-26	31,369	6%	(31369 X 6%) / 365	5.16
10-Jan-26	29,323	6%	(29323 X 6%) / 365	4.82
			Total interest	42.28

In the above table, the various daily closing balances are considered to calculate the daily interest income. This interest calculation runs in the background for three months, at the end of which, the bank credits the total interest to the customer’s account. However, there are exceptions, such as IDFC FIRST Bank, which credits interest income to the customer account every month.

More about monthly credits

When you find a bank that offers a monthly interest credit instead of a quarterly one, you should give it preference. Let us understand how to calculate interest on a savings account for monthly credits.

For example, let us assume you maintained a consistent balance of ₹1,00,000 every day throughout the year. At 6% interest per annum, your interest income for the first quarter would be ₹1,500. So, for the second quarter, interest will be calculated on ₹ (1,00,000+1,500), i.e. the interest credited at the end of the quarter.

However, in monthly credits, an interest of ₹500 is credited at the end of the month. So, for the second month, interest will be calculated on ₹ (1,00,000+500), i.e. the interest credited at the end of the month.

As interest income is added to your account balance at triple the speed, compounding of income also speeds up. Besides, you have better and more frequent visibility of the interest you are earning on your account balance.

To sum up, monthly credits can lead to higher interest income in the long run, particularly if you maintain a high daily balance in your account.

High-interest savings account

Most customers these days also pay attention to how much interest on a savings account they can earn. This is largely due to many banks offering interest rates of up to 6.50% per annum. The keyword to note here is “up to”.

If you read the interest chart of a bank, you will notice that interest rates differ across various balance slabs. For instance, the interest chart of a bank may read:

3% up to ₹1 lakh

4% from ₹1 lakh to ₹15 lakh

5% from ₹15 lakh to ₹25 lakh

6.50% from ₹25 lakh to ₹1 crore

If you maintain a balance of ₹2 lakh, you will earn 4%, not 6.50%. Therefore, the decision to choose a bank should not be based solely on a high interest rate. The efficiency of the mobile and digital banking platform, the frequency of interest credits, and overall customer experience are important factors that make a bank ideal for you.

Finding the ideal bank

While we have tried to understand how to calculate interest on a savings account, it is important to touch upon other factors that make a bank better than the rest for you.

IDFC FIRST Bank offers competitive interest rates on savings accounts, with a maximum of 6.50% on balances between ₹10 lakh and ₹1 crore. IDFC FIRST Bank was also a pioneer in introducing monthly interest credits in the Indian banking industry. This makes an IDFC FIRST Bank Savings Account a high-yield account. Besides, you don’t need to wait for three months to measure your financial growth.

The IDFC FIRST Bank Savings Account debit card also fetches exclusive discounts and cashbacks every time you spend as a FIRST Rewards member. Banking is 24/7 with IDFC FIRST Bank, thanks to its internet banking platform and intuitive mobile banking app.

Final word

Now that you understand how to calculate interest on savings accounts, you need to find out which bank gives a monthly interest on a savings account to maximise your savings. However, transparency in terms and conditions, a user-friendly digital banking experience, unmatched rewards programs, and a high-yield savings account are just as important for the ideal banking experience. This is where IDFC FIRST Bank ticks all the right boxes. Start your banking journey with IDFC FIRST Bank today!  

Frequently Asked Questions

Is interest earned on a savings account taxable?

Yes, savings account interest is taxable under “Income from Other Sources,” though individuals can claim a deduction of up to ₹10,000 per year under Section 80TTA (conditions apply).

Does the interest rate on a savings account remain fixed?

No, banks can revise savings account interest rates from time to time, depending on market conditions and internal policies.

Can I open and manage a high-interest savings account entirely online?

Many banks now allow fully digital account opening and management through mobile apps and internet banking, subject to KYC requirements.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.