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Interest Rates on Deposits – 11 Most Expected Questions ⏳ Updated: Dec 2025 | 🎯 11 MCQs
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Banks can accept interest-free deposits only in a …… .
Explanation:
Correct: B
Banks are permitted to accept interest-free deposits, but strictly only in current accounts. According to the guidelines on Interest Rates on Deposits, savings accounts must be interest-bearing. This distinction ensures that transactional accounts for businesses do not accrue costs for the bank in terms of interest payouts.
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What is the definition of a "Reinvestment Deposit"?
Explanation:
Correct: C
Reinvestment deposits are defined as those where the interest earned is reinvested back into the deposit at the same contracted rate until the deposit matures. This is a key concept when calculating yield under Interest Rates on Deposits, as the interest effectively compounds over the tenure.
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Which of the following statements regarding the additional interest benefit for bank staff are correct?
1. For a staff member to receive the benefit on a joint deposit with family, the staff member must be the principal account holder.
2. The benefit is admissible on a term deposit held in the name of a minor child of a deceased staff member.
3. The benefit is admissible on term deposits held by retired staff members.
4. If court-awarded compensation is deposited for a minor, it is ineligible for the benefit, even if held jointly with a staff member.
1. For a staff member to receive the benefit on a joint deposit with family, the staff member must be the principal account holder.
2. The benefit is admissible on a term deposit held in the name of a minor child of a deceased staff member.
3. The benefit is admissible on term deposits held by retired staff members.
4. If court-awarded compensation is deposited for a minor, it is ineligible for the benefit, even if held jointly with a staff member.
Explanation:
Correct: B
The additional interest benefit for bank staff is available to retired staff and on joint accounts where the staff member is the principal holder. However, regarding Interest Rates on Deposits, specific exclusions apply, such as funds belonging to a minor from court awards. These rules are often detailed in the RBI Master Direction regarding interest payments.
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How does a bank determine the detailed procedure for levying penalties on partial premature withdrawal of deposits?
Explanation:
Correct: B
Banks are permitted to levy penalties for premature withdrawal, including partial withdrawals. The detailed procedure is determined by the banks themselves via their Board approved policy. This flexibility allows banks to manage their liquidity risk while adhering to the broader framework of Interest Rates on Deposits.
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Which of the following statements regarding the eligibility for opening savings bank accounts are correct?
1. A savings bank account can be opened for a Government Department or scheme only if it is explicitly listed in Schedule-I of the RBI’s Master Direction.
2. Private entities are prohibited from opening savings bank accounts for the purpose of implementing Government funding schemes.
3. All Government Departments are automatically eligible to open savings accounts without restriction.
1. A savings bank account can be opened for a Government Department or scheme only if it is explicitly listed in Schedule-I of the RBI’s Master Direction.
2. Private entities are prohibited from opening savings bank accounts for the purpose of implementing Government funding schemes.
3. All Government Departments are automatically eligible to open savings accounts without restriction.
Explanation:
Correct: A
Eligibility is restricted; Government Departments can only open savings accounts if listed in Schedule-I. Consequently, private entities cannot open such accounts for Government schemes. These restrictions on account types directly impact how Interest Rates on Deposits are applied to government funds vs. commercial funds.
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Based on eligibility rules for opening savings bank accounts,
which of the following entities is not eligible?
which of the following entities is not eligible?
Explanation:
Correct: B
Societies registered under State Co-operatives Societies Acts are not eligible to open savings accounts. Only those under the Societies Registration Act, 1860 (or similar) are eligible. Understanding Savings Account Eligibility is crucial because it determines whether an entity is entitled to the standard Interest Rates on Deposits applicable to savings accounts.
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If a domestic term deposit matures and the proceeds remain unpaid, the unclaimed amount will attract an interest rate applicable to a savings account or the contracted rate on the matured deposit, ……
Explanation:
Correct: B
For unpaid proceeds of a matured domestic term deposit, the amount attracts the savings account rate or the contracted rate on the matured deposit, whichever is lower. This rule prevents banks from having to pay high Interest Rates on Deposits for funds that are effectively lying idle post-maturity.
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How is the rate of interest determined for a matured deposit standing in the name of a deceased individual depositor?
Explanation:
Correct: B
The interest rate on matured deposits for a deceased depositor is determined by the bank's Board-approved policy. While the RBI sets the framework for Interest Rates on Deposits, banks have discretion here to formulate compassionate yet operationally sound policies for deceased claims.
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Are banks permitted to accept recurring deposits under the FCNR(B) Scheme?
Explanation:
Correct: C
Banks are explicitly prohibited from accepting recurring deposits under the FCNR(B) Scheme; these must be Term Deposits only. This restriction is a key part of the FCNR(B) Scheme Rules, which differentiate foreign currency liabilities from standard domestic Interest Rates on Deposits.
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Which of the following statements regarding the renewal of FCNR(B) deposits are correct?
1. If the period from maturity to renewal does not exceed 14 days, the interest rate is the lower of the rates prevailing on the maturity date or the renewal date.
2. If the period from maturity to renewal exceeds 14 days, the interest for the overdue period is determined by treating the overdue period as a fresh term deposit.
3. If the period from maturity to renewal exceeds 14 days, no interest is paid for the overdue period.
1. If the period from maturity to renewal does not exceed 14 days, the interest rate is the lower of the rates prevailing on the maturity date or the renewal date.
2. If the period from maturity to renewal exceeds 14 days, the interest for the overdue period is determined by treating the overdue period as a fresh term deposit.
3. If the period from maturity to renewal exceeds 14 days, no interest is paid for the overdue period.
Explanation:
Correct: A
For FCNR(B) renewals, if the gap is ≤14 days, the rate is the lower of maturity or renewal date rates. If >14 days, the overdue period is treated as a fresh term deposit. These specific calculation methods for Interest Rates on Deposits ensure standardization in handling foreign currency renewals.
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Which of the following statements regarding remuneration for mobilizing deposits are correct?
1. Banks are generally prohibited from paying any commission, fees, or brokerage for mobilizing deposits.
2. An exception is made for commission paid to Direct Selling Agents under an outsourcing arrangement.
3. An exception is made for remuneration paid to Business Correspondents and Business Facilitators.
4. Banks are permitted to pay incentives to high-net-worth clients for introducing new deposit accounts.
1. Banks are generally prohibited from paying any commission, fees, or brokerage for mobilizing deposits.
2. An exception is made for commission paid to Direct Selling Agents under an outsourcing arrangement.
3. An exception is made for remuneration paid to Business Correspondents and Business Facilitators.
4. Banks are permitted to pay incentives to high-net-worth clients for introducing new deposit accounts.
Explanation:
Correct: C
Banks generally cannot pay commission for deposits, with exceptions for DSAs and Business Correspondents. However, paying incentives to clients is prohibited. This regulation ensures that Interest Rates on Deposits remain the primary tool for attracting customers, rather than under-the-table kickbacks. This applies across all Domestic Term Deposits and savings products.
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Looking for the most important Interest Rates on Deposits for your upcoming exams? We have analyzed past papers for Bank Promotion Exams Scale II – V, RBI Exams, SBI PO, and IBPS PO to bring you the 11 most expected questions. Take the live test, review the blueprint, and master the core concepts.
- 🚀 Updated for 2026: Aligned with the latest Bank Promotion Exams Scale II – V, RBI Exams, SBI PO, and IBPS PO syllabus.
- 🧠 Output & Concept Based: Covers basics to advanced scenarios.
- 📊 Live Gamification: Track your score and time dynamically.
- 📥 Free PDF Notes: Available instantly via our Telegram channel.
Test Blueprint & Topic Weightage
| General Eligibility & Account Types | Q1 – Q3, Q5 – Q6 | Easy to Medium |
| Maturity & Withdrawal Regulations | Q4, Q7 – Q8 | Medium |
| FCNR(B) & Special Provisions | Q9 – Q11 | Hard |
⚠️ Examiner Trap Alert: Students often falsely assume that FCNR(B) accounts allow recurring deposits or misunderstand the 14-day grace period for renewals. Always remember that FCNR(B) only permits Term Deposits, and overdue periods beyond 14 days are treated as entirely fresh deposits.
Practice Interest Rates on Deposits (Live Mock Test)
⏱️ Estimated Time: 17 Minutes | 🎯 Target Score: 9+ | 📊 Difficulty: Moderate to Hard
High-Yield Core Concepts
Current Account Restrictions: While Domestic Term Deposits earn fixed interest, banks are strictly permitted to accept interest-free deposits only in Current Accounts.
Maturity Rules: Unpaid matured deposits attract the lower of the savings or contracted rate, while early closures are governed by the bank’s specific Premature Withdrawal Penalty policy.
Foreign Currency Restrictions: As per FCNR(B) Scheme Rules, recurring deposits are explicitly prohibited, restricting this scheme purely to term deposits.
Remuneration Limitations: Under the RBI Master Direction, banks generally cannot pay commission or brokerage for mobilizing deposits, with strict exceptions only for Business Correspondents or Direct Selling Agents.
Semantic Comparison: Interest Rates on Deposits vs Interest Rates on Advances
| Core Definition | The rate banks pay to customers for parking their funds. | The rate banks charge to customers for borrowing funds. |
| Primary Use Case | Encourages consumer savings and mobilizes bank liquidity. | Generates primary interest income and profitability for the bank. |
| Exam Importance | Highly tested in operational banking and RBI compliance modules. | Critical for credit management and priority sector lending topics. |
Frequently Asked Questions
Why is Interest Rates on Deposits critical for Bank Promotion Exams Scale II – V, RBI Exams, SBI PO, and IBPS PO?
It is a consistently high-scoring area. Examiners frequently repeat core concepts from this section, particularly regarding operational exceptions and FCNR(B) guidelines.
Does this mock test cover the full syllabus?
Yes, these questions target the most highly-weighted concepts found in previous years’ papers and recent RBI Master Directions.
What are the most repeated topics?
Based on our blueprint, General Eligibility & Account Types and FCNR(B) & Special Provisions carry the highest weightage.