What is Interest Rate?
IndianMoney.com Research Team | Posted On Monday, January 21,2019, 12:07 PM
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What is Interest Rate?
Interest is defined as the additional amount payable by the borrowers. Interest can also be defined as the extra money charged by the lenders on the money lent. Interest rate is the rate at which the lenders levy interest on the money lent.
BREAKING DOWN 'Interest Rate'
Interest rate is the cost of debt for borrowers and rate of return for lenders. Interest is charged on all kinds of loans/debts. Earning returns in the form of interest is what motivates lenders to lend.
Borrowers borrow money for various reasons for fulfilling their requirements like purchasing home, education, starting/expanding their business and so on. The money borrowed has to be repaid either in lump sum at a pre-determined date along with the interest agreed, or in equated monthly installments/EMIs.
Simple Interest Rate
Simple Interest is a type of interest applicable on the amount borrowed for the term of the loan. There is no consideration on other factors while calculating Simple Interest. Simple Interest is levied generally on short term loans. Simple interest rate is a ratio and is expressed as a percentage. Simple Interest plays an important role in determining the amount of interest on a loan or an investment.
The money lent is called ‘principal’, duration of repayment is called ‘term’ in months, Simple Interest rate is called ‘rate’ and Simple Interest is generally referred to as ‘interest’. Below mentioned is the formula used to calculate Simple Interest:
Simple Interest = (Principal * Term* Rate) / 100.
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SEE ALSO: Best Credit Cards in India 2019
What is Interest Rate?
Compound Interest Rate:
Basically, Compound Interest is the interest calculated on the Simple Interest earned. Its interest on interest.
With compound interest, your investment grows fast. Compound Interest enables you earn more on your investment. Compound Interest can be compounded on daily or monthly or quarterly basis, as per the agreement. Higher the compounding higher will be the returns earned. Below mentioned is the formula to calculate the amount earned with compound interest:
A = P(1+R/n)nt
Where ‘P’ stands for the principal, ‘n’ stands for the number of times compounding is done and‘t’ stands for the loan term.
Simple Interest vs Compound Interest:
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Simple Interest |
Compound Interest |
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Charged only on principal |
Charged on the loan amount along with interest |
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Is a small portion of principal |
A small percentage of principal and simple interest earned |
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Returns are lower |
Returns are higher |
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Wealth growth is lower |
Wealth growth will be higher |
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Principal remains constant |
Principal increases with time |
Types of Banks
The Reserve Bank of India (RBI) is the central bank of India, established in 1935, as per the Reserve Bank of India Act. RBI makes monetary policies to create financial stability in India and is responsible of regulating the country's currency, banking sector and other banking operation including credit system. RBI has classified banks as follows:
1. Public Sector Banks: These are the banks in which the Central Government of India holds majority of the stake (51%). The Government of India is responsible for administering the operations of these banks. There are currently 27 Public Sector Banks in India:
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ii) Private Sector Banks: These are the banks in which a private entity holds majority of the stake. Following are the list of private sector banks in India:
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Bank Name |
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Axis Bank |
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Bandhan Bank |
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Catholic Syrian Bank |
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City Union Bank |
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DCB Bank |
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Dhanlaxmi Bank |
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Federal Bank |
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HDFC Bank |
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ICICI Bank |
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IndusInd Bank |
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IDFC First Bank |
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Jammu & Kashmir Bank |
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Karnataka Bank |
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Karur Vysya Bank |
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Kotak Mahindra Bank |
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Lakshmi Vilas Bank |
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Nainital Bank |
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RBL Bank |
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South Indian Bank |
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Tamilnad Mercantile Bank Limited |
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Yes Bank |
SEE ALSO: PF Status - Check EPF Status Online
iii) Regional Rural Banks: Regional Rural Banks generally operate in rural areas of India. These banks are usually sponsored by a Public Sector Bank.
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SI No |
Name of Regional Rural Bank & Website Link |
Sponsor Bank |
State |
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1 |
Allahabad UP Gramin Bank |
Allahabad Bank |
Uttar Pradesh |
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2 |
Andhra Pradesh Grameena |
State Bank of India |
Andhra Pradesh |
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Vikas Bank |
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3 |
Andhra Pragathi Grameena Bank |
Syndicate Bank |
Andhra Pradesh |
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4 |
Arunachal Pradesh Rural Bank |
State Bank of India |
Arunachal Pradesh |
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5 |
Assam Gramin Vikash Bank |
United Bank of India |
Assam |
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6 |
Bangiya Gramin Vikash Bank |
United Bank of India |
West Bengal |
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7 |
Baroda Gujarat Gramin Bank |
Bank of Baroda |
Gujarat |
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8 |
Baroda Rajasthan Kshetriya Gramin Bank |
Bank of Baroda |
Rajasthan |
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9 |
Baroda UP Gramin |
Bank of Baroda |
Uttar Pradesh |
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Bank |
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10 |
Bihar Gramin Bank |
UCO Bank |
Bihar |
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11 |
Central Madhya Pradesh |
Central Bank of India |
Madhya Pradesh |
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Gramin Bank |
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12 |
Chaitanya Godavari Grameena Bank |
Andhra Bank |
Andhra Pradesh |
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13 |
Chhattisgarh Rajya Gramin Bank |
State Bank of India |
Chhattisgarh |
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14 |
Dena Gujarat Gramin Bank |
Dena Bank |
Gujarat |
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15 |
Ellaquai Dehati Bank |
State Bank of India |
Jammu & Kashmir |
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16 |
Gramin Bank of Aryavart |
Bank of India |
Uttar Pradesh |
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17 |
Himachal Pradesh Gramin Bank |
Punjab National Bank |
Himachal Pradesh |
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18 |
J&K Grameen Bank |
J&K Bank Ltd. |
Jammu & Kashmir |
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19 |
Jharkhand Gramin Bank |
Bank of India |
Jharkhand |
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20 |
Karnataka Vikas Grameena Bank |
Syndicate Bank |
Karnataka |
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21 |
Kashi Gomti Samyut Gramin Bank |
Union Bank of India |
Uttar Pradesh |
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22 |
Kaveri Grameena Bank |
State Bank of India |
Karnataka |
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23 |
Kerala Gramin Bank |
Canara Bank |
Kerala |
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24 |
Langpi Dehangi Rural Bank |
State Bank of India |
Assam |
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25 |
Madhyanchal Gramin Bank |
State Bank of India |
Madhya Pradesh |
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26 |
Madhya Bihar Gramin Bank |
Punjab National Bank |
Bihar |
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27 |
Maharashtra Gramin Bank |
Bank of Maharashtra |
Maharashtra |
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28 |
Malwa Gramin Bank |
State Bank of India |
Punjab |
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29 |
Manipur Rural Bank |
United Bank of India |
Manipur |
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30 |
Meghalaya Rural Bank |
State Bank of India |
Meghalaya |
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31 |
Mizoram Rural Bank |
State Bank of India |
Mizoram |
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32 |
Nagaland Rural Bank |
State Bank of India |
Nagaland |
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33 |
Narmada Jhabua Gramin Bank |
Bank of India |
Madhya Pradesh |
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34 |
Odisha Gramya Bank |
Indian Overseas Bank |
Odisha |
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35 |
Pallavan Grama |
Indian Bank |
Tamil Nadu |
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Bank |
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36 |
Pandyan Grama Bank |
Indian Overseas Bank |
Tamil Nadu |
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37 |
Paschim Banga Gramin Bank |
UCO Bank |
West Bengal |
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38 |
Pragathi Krishna Gramin |
Canara Bank |
Karnataka |
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Bank |
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39 |
Prathama Bank |
Syndicate Bank |
Uttar Pradesh |
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40 |
Puduvai Bharthiar |
Indian Bank |
Puducherry |
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Grama Bank |
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41 |
Punjab Gramin Bank |
Punjab National Bank |
Punjab |
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42 |
Purvanchal Bank |
State Bank of India |
Uttar Pradesh |
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43 |
Rajasthan Marudhara Gramin Bank |
State Bank of India |
Rajasthan |
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44 |
Saptagiri Grameena |
Indian Bank |
Andhra Pradesh |
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Bank |
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45 |
Sarva Haryana Gramin Bank |
Punjab National Bank |
Haryana |
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46 |
Sarva UP Gramin Bank |
Punjab National Bank |
Uttar Pradesh |
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47 |
Saurashtra Gramin Bank |
State Bank of India |
Gujarat |
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48 |
Sutlej Gramin Bank |
Punjab and Sind Bank |
Punjab |
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49 |
Telangana Grameena Bank |
State Bank of India |
Telangana |
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50 |
Tripura |
United Bank of India |
Tripura |
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Gramin Bank |
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51 |
Utkal |
State Bank of India |
Odisha |
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Grameen Bank |
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52 |
Uttar Banga Kshetriya Gramin Bank |
Central Bank of India |
West Bengal |
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53 |
Uttar Bihar Gramin Bank |
Central Bank of India |
Bihar |
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54 |
Uttarakhand Gramin |
State Bank of India |
Uttarakhand |
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Bank |
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55 |
Vananchal Gramin Bank |
State Bank of India |
Jharkhand |
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56 |
Vidharbha Konkan Gramin Bank |
Bank of India |
Maharashtra |
iv) Foreign Banks: These are the banks that have to follow rules and obligations of both the host country and home country.
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SI N0 |
Bank Name |
Home Country |
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1 |
AB Bank Ltd |
Bangladesh |
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2 |
ABN Amro Bank |
Netherland |
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3 |
American Express |
USA |
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4 |
Bank of Nova Scotia |
Canada |
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5 |
Barclay’s Bank |
UK |
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6 |
BNP Paribas Bank |
France |
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7 |
China Trust Commercial Bank |
Taiwan |
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8 |
CITI Bank |
USA |
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9 |
Credit Agrihole Corporate Investment Bank |
France |
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10 |
Credit Suisse AG |
Switzerland |
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11 |
CTBC Bank |
Taiwan |
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12 |
DBS Bank |
Singapore |
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13 |
Woori Bank |
South Korea |
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14 |
Westpac Banking Corporation |
Australia |
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15 |
United Overseas Bank Ltd |
Singapore |
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16 |
UBS AG Bank |
Switzerland |
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17 |
Royal Bank of Scotland |
Scotland |
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18 |
Deutsche Bank |
Germany |
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19 |
Sumitomo Mitsui Bank |
Japan |
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20 |
First Rand Bank |
South Africa |
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21 |
Standerd Charted Bank |
UK |
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23 |
The Bank of Tokyo-Mitsubishi UFJ, Ltd |
Japan |
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24 |
Sonali Bank |
Bangladesh |
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25 |
The Bank of Tokyo-Mitsubishi UFJ, Ltd |
Japan |
SEE ALSO: What is EPF?
v) Cooperative Banks: These banks work on no-profit no-loss basis; aiming to serve entrepreneurs, small businesses, industries and self employed individuals in urban areas. In rural areas, they mainly aim at financing agricultural activities like farming, livestock and hatcheries.
vi) Payment Banks: These banks are conceptualized by the RBI. These banks allow customers to transact up to Rs 1 Lakh. They offer services like debit card and net banking.
- Airtel Payments Bank
- Aditya Birla Payments Bank
- Paytm Payments Bank
- Jio Payments Bank
- India Post Payments Bank
- Fino Payment Bank
Types of bank accounts
Basically, there are two types of accounts in India:
i) Demand deposit accounts: Savings banks accounts and current accounts fall under this category. Deposits can be made at any time and hence the ‘demand deposit’ account. Money deposited in a savings bank account earns interest with time. The rate of interest varies across banks. There is no interest for the money deposited in current account due to the liquidity they offer. Table below shows the interest rates offered by popular banks on saving account:
| S.No. | Banks | Minimum Balance required (₹) | Rate of Interest (p.a.) |
| 1 | Allahabad Bank | 1000 | 3.50%-4% |
| 2 | Andhra Bank | 0 | 3.50%-4% |
| 3 | Axis Bank | 0 | 3.50%-4% |
| 4 | Bank of baroda | 0 | 3.50%-4% |
| 5 | Bank of India | 0 | 3.50%-4% |
| 6 | Bandhan bank | 0 | 4%-6.55% |
| 7 | Bank of Maharashtra | 1000 | 4% |
| 8 | Canara Bank | 500 | 4% |
| 9 | Central Bank of India | 50 | 3.50%-4% |
| 10 | Citibank | 200000 | 3.50% |
| 11 | Corporation Bank | 0 | 3.50%-4% |
| 12 | Dena Bank | 0 | 4% |
| 13 | Dhanlaxmi Bank | 0 | 4%-6.5% |
| 14 | Digibank | 0 | 4%-7% |
| 15 | Federal Bank | 0 | 3.50%-6.51% |
| 16 | HDFC Bank | 0 | 3.50%-4% |
| 17 | ICICI Bank | 0 | 3.50%-4% |
| 18 | IDBI Bank | 500/2500/5000 | 3.50%-4% |
| 19 | IDFC Bank | 25000 | 4% |
| 20 | Indian Bank | 250 | 4% |
| 21 | Indian Overseas Bank | 500/1000 | 4% |
| 22 | IndusInd Bank | 0 | 4%-6% |
| 23 | Jammu and Kashmir Bank | 0 | 3.50% |
| 24 | Karnataka Bank | 0 | 3.50%-4% |
| 25 | Kotak Bank | 0 | 5-6% |
| 26 | Lakshmi Vilas Bank | 1000 | 4%-6.50% |
| 27 | Oriental Bank of Commerce | 0 | 3.50%-4% |
| 28 | Punjab National Bank | 500 | 3.50%-4% |
| 29 | Punjab & Sind Bank | 500 | 3.50%-4% |
| 30 | South Indian Bank | 0 | 4% |
| 31 | State Bank of India (SBI) | 0 | 3.50%-4% |
| 32 | Syndicate Bank | 0 | 3.50%-4% |
| 33 | UCO Bank | 0 | 3.50%-4% |
| 34 | Union Bank of India | 0 | 3.50%-4% |
| 35 | United Bank of India | 0 | 3.50%-4% |
| 36 | Vijaya Bank | 500 | 3.50%-4% |
| 37 | YES Bank | 0 | 5%-6.25% |
List Payments Bank Interest Rates and Minimum Balance:
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S.No. |
Banks |
Minimum Balance |
Rate of Interest |
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1 |
Paytm Payments Bank |
0 |
4% per month |
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2 |
Airtel Payments Bank Ltd. |
0 |
5.5% per annum |
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3 |
India Post Payments Bank |
0 |
5.5% per annum |
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4 |
FINO Payments Bank Ltd. |
1000 |
4% per annum |
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ii) Term deposit accounts: Fixed deposits, term deposit and reinvestment accounts fall under this category as the money has to be deposited at fixed time intervals for a fixed term.
Below table shows fixed deposit interest rate across popular banks:
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Bank |
Tenure (Min-Max) |
Regular Interest Rates |
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IDFC Bank |
7 days to 10 years |
4.00%-8.25% |
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Lakshmi Vilas Bank |
7 days to 20 months |
4.50%-7.50% |
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DCB Bank |
7 days to 10 years |
4.00%-7.75% |
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Ratnakar Bank |
7 days to 20 years |
5.00%-7.50% |
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Deutsche Bank |
1 year to 5 years |
7.50%-8.25% |
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Bandhan Bank |
7 days to 10 years |
3.50%-7.40% |
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Karur Vysya Bank |
7 days to above 3 years |
5.00%-7.00% |
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Tamil Mercantile Bank |
15 days to above 3 years |
5.00%-7.15% |
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Karnataka Bank |
7 days to 10 years |
3.50%-7.30% |
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HDFC Bank |
7 days to 10 years |
3.50%-7.25% |
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IndusInd Bank |
7 days to above 5 years |
3.50%-7.65% |
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Oriental Bank of Commerce |
7 days to 10 years |
5.75%-6.75% |
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Yes Bank |
7 days to 10 years |
5.00%-7.10% |
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Union Bank |
7 days to 10 years |
5.00%-6.85% |
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Axis Bank |
7 days to 10 years |
3.50%-7.45% |
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ICICI Bank |
7 days to 10 years |
4.00%-7.25% |
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IDBI Bank |
15 days to 20 years |
5.75%-6.85% |
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Kotak Mahindra Bank |
7 days to 10 years |
3.50%-7.30% |
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Vijaya Bank |
7 days to above 5 years |
5.00%-6.80% |
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Punjab National Bank |
7 days to 10 years |
5.70%-6.75% |
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Bank of Baroda |
7 days to 10 years |
4.25%-6.75% |
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State Bank of India |
7 days to 10 years |
5.75%-6.85% |
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Jana Small Finance Bank |
7 days to 10 years |
6.00%-8.50% |
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City Union Bank |
7 days to 10 years |
6.25%-7.10% |
Personal loan Interest Rate:
Personal loans are the loans offered by banks and financial institutions. Unlike home loans and car loans, funds received on personal loans can be utilized for any reason, and banks have no restriction on the use of funds.
Just like any other loan, personal loans are offered at a certain interest rate. Below table shows the personal loan interest rate across popular lenders in India:
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Banks |
Interest Rates |
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8.50% - 13.00% |
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11.55% - 13.20% |
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15.75% - 24.00% |
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10.99% - 16.00% |
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11.90% - 16.90% |
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12.20% - 14.20% |
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11.75% - 12.75% |
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11.00% - 14.00% |
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10.85% - 14.35% |
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10.99% - 18.99% |
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12.95% - 13.95% |
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13.00% - 14.00% |
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12.00% |
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11.75% - 14.65% |
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11.25% - 21.50% |
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10.99% - 17.84% |
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10.99% - 18.49% |
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12.00% - 14.00% |
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10.99% - 16.00% |
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12.40% - 14.40% |
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12.85% |
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13.50% - 16.00% |
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10.99% - 20.99% |
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11.30% |
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11.30% - 14.75% |
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11.40% |
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12.80% - 14.05% |
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13.00% - 18.00% |
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11.30% - 15.05% |
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11.05% - 15.45% |
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12.00% - 17.00% |
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12.40% - 13.65% |
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9.85% - 12.85% |
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13.45% - 14.20% |
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12.55% - 13.55% |
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Starting at 10.75% |
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10.99% - 18.00% |
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14.00% - 33.00% |
Conclusion
In short, interest is an extra amount payable on the repayment of debt availed. Interest is the cost of debt for the borrowers. Interest is the rate of return for the lenders. Interest enhances the principal of the investment.
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