Todsy I feel disheartened to know that my bank has been fooling me around for last couple of years. Infact call it my ignorance of not understanding the interest calculation procedure by bank and happily accepted whatever I was told by the bank personal.
Few years ago I opened an account with a nationalized bank after finding they have a higher interest bracket in the market. They were looking very lucrative with the normal saving account as well as the long term fixed deposits. While the normal rate of interest in other bank ranges from 2.5 % to 4%, this bank providing me a higher interest of 5.5% upto a balance of 1 lacs and more and 6% on balance over 10 Lacs. They were providing a lower rate of interest of 4.25% on balance of less than 1 lacs.
Any common people would find it profitable to keep a balance just above 1Lacs to earn higher interest. There is difference of 1.25% (5.5% - 4.25%) between two sides of 1Lacs. To maintain a liquid fund for urgency I found it attractive and manage to keep a balance just above the threshold. In run up to so many events in my life, I never care to work upon the calculation as every quarter my bank credits the interest earning into may account.
It was only recently that I understand how the bank carry out the calculation. In the above interest chart , anybody would love to keep a balance above 1lacs to earn more, however there is a catch. The bank is doing dual calculation on your balance. They will give us interest at 4.25 % upto 1 lacs and then they calculate 5.5% on balance above 1 lacs. For example, I have a balance of Rs.185000 on any particular dsy of the monthe then the interest calculation would be
Interest Rate upto Rs. 1 Lakh will be calculated at 4.25% p.a. for remaining balances Interest Rate will be calculated at 5.50% (1,00,0004.25% /365) + (85,0005.50% /365)**
This a hidden calculation that bank does at their end but never care to disclose with the customer. The customer will always assume that there balance at bank is increasing handsomely, without knowing the actual calculation techniques used by bank. Now this is very surprising and an eye opener for me. I understood that bank has been fooling me around for so long years. May be many are aware but not every bank customer does the calculation so deeply and they take whatever bank tells them. But it is important that customer should be aware of everything by doing own calculation and never take these banks for granted.