Interest Rates on Deposits is the cornerstone topic for banking aspirants and operational staff. In this guide, we cover the 11 most important questions derived from RBI guidelines. This critical mock test is specifically designed for Bank Promotion Exams Scale II – V, RBI Exams, SBI PO, and IBPS PO to help you master the operational concepts quickly.
Why This Interest Rates on Deposits Test Matters?
Exam Weightage: For Bank Promotion exams, this topic directly relates to RBI circulars and operational banking knowledge. For RBI and IBPS exams, it forms a crucial part of the General Banking Awareness section.
Difficulty: Moderate to Hard (Rule-based).
Recommended: Read Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Directions, 2025
Practice Interest Rates on Deposits (Live Mock Test)
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Interest Rates on Deposits – 11 Most Expected Questions
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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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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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⚡ Quick Revision: Key Facts for Interest Rates on Deposits
Current Accounts: Banks can accept interest-free deposits only in Current Accounts; Savings Accounts must pay interest.
FCNR(B) Restriction: Recurring Deposits (RDs) are NOT permitted under the FCNR(B) scheme; only Term Deposits are allowed.
Overdue Deposits: Interest on unclaimed matured domestic deposits is paid at the Savings rate or Contracted rate, whichever is lower.
❓ Frequently Asked Questions
Why is Interest Rates on Deposits critical for Bank Promotion Exams?
It is a high-scoring area involving core operational guidelines. Mastering Interest Rates on Deposits ensures better performance in the Banking Law and Practice papers.
Does this test cover the FCNR(B) guidelines?
Yes, these Interest Rates on Deposits questions cover specific FCNR(B) renewal and deposit type rules found in RBI circulars.
Who determines the penalty for premature withdrawal?
While the RBI permits it, the specific procedure and quantum of penalty are determined by the individual bank’s Board Approved Policy.