We all have a saving bank account. Some of us have more than one accounts. The actual purpose of the saving bank account is to encourage and insentience saving among the account holders that is why the banks offer interest. The advantage of having a bank account is we can carry debit card and access our money on the go. Also, bank account is the most fundamental aspect of being in finance market as every other financial asset is linked through it.
The purpose of this article is to inform you regarding various aspects of your saving bank account and how you can maximize the limited gains with its inherent safety aspect. below is the list of some fixed income assets. The income is fixed because while investing the banks declare interest rate be it on your savings account or the fixed or recurring deposits, the investor earns interest accordingly, nothing more or less. The bank have discretion to change these rates.
To make the article shorter I have sub divided this article into two parts,
part 1 i.e. bellow section will deal with the banks – Types of accounts and features.
part 2 will deal with the Postal schemes.
a savings account is preferable for all normal users while a current account is preferable for the businessman who frequently transact. A savings account earns interest while there is no interest on current account. A savings account can be salaried account, i.e. the employer deposits monthly salary in such account. Such salaried account is mostly zero balance account, that is the customer can exhaust entire balance from the account and there is no minimum balance norm.
For all other savings account there is a norm of minimum balance that is in any case the user need to maintain some predetermined monthly average balance in their account. This norm is disclosed while opening the bank account and it varies from region to region. For rural areas and towns its less and for metro city it is more.
Some banks let go of this minimum balance provided the customer invests through the saving account. eg. Yes bank have minimum balance clause of Rs. 10000 however if the customer creates an FD of Rs. 50,000/- or more, or If invests in Mutual fund with SIP of Rs. 5000 then Yes bank treats the saving account as zero balance account.most of the new age banks like Yesbank, Indusind bank offer this feature. You need to check this clause with your bank. In any case know the monthly average balance requirement of your account to avoid any penalty from bank.
New age banks means these are the youngest scheduled commercial banks in india.
Deposit types –
- savings account
In the old big banks like SBI, ICICI, HDFC Etc the saving account offers 3.5% interest rate. It was 4% till 2016, Postal saving bank still offers 4% interest. Some new banks like Kotak bank, Yes bank offer 5% interest on balance upto 1 lakh and for more than 1 lakh 6% up to 1 Crore. The balance in savings account is liquid i.e. the account holder can withdraw it as per need.
mobile apps like 811 app advertises for 6% interest but it is capped at 2 lakh with 5% for first one lakh and then 6% for above 1 lakh amount.
- Fixed deposit/ Time deposit (FD/TD)
In case of fixed deposits or time deposits, The old banks offer less than 6.5% interest on FD or RD, but it changes as per Reserve bank policies and inflation data. Some new banks are offering up to 7% interest. This rate keeps changing as per RBI policy and you need to keep an eye on these rates.
For electronic FD/RD there is no waiting, i.e. they are liquid. But in case of old banks, cancelling FD/RD before maturity can cause penalty of some amount. As of January 2018, New banks don’t charge for that.
you can avail a credit card by keeping your FD as a collateral. nowadays most of the banks offer such card. The card limit is determined as per your FD value, usually it is about 80-90% of total FD. Such FD cannot be broken or liquidated unless you surrender the credit card.
- Recurring deposits (RD)
They earn interest like the fixed deposit, in case of fixed deposit the customer keeps lump-sum amount as deposit and that amount earns interest. In case of RD a fixed amount is collected from your savings account to a RD account, this accumulated amount earns the interest. Like FD, RD also have term i.e. duration for which you want to keep this deposit.
- Sweep in account
There is something called as sweep-in scheme in almost all of the saving bank accounts. This is a hybrid of saving and fixed deposit. In this account, you chose a limit say Rs. 25,000/- this first 25,000 earns the interest of saving account i.e. 3.5% or 4%. But then any amount deposited (after that 25,000) in your account earns interest as much as fixed deposit. So if you have 1 lakh in your savings account then Rs. 25,000 earns saving account interest but remaining Rs. 75,000 earns Interest that of FD i.e. 6.5% to 7% if you spend 5000 from your account then 5000 from your sweep-in FD, (i.e. 75000 – 5000) is credited into your saving account. In effect, your saving account buffer stays at Rs. 25,000 and your new FD becomes that of 70,000. later if you add Rs. 10,000 in your account then all excess to 25,000 is again transferred into your FD account. Thus now with 10,000 FD becomes of 70,000 + 10,000. Thus, you don’t need to regulate anything.
To create this kind of account you need to visit your bank branch or some new banks have online facility for this, your FD will be converted into sweep-in account.
Caution : If its your frequent transaction account then you may not benefit much because to earn any interest you need to keep the deposit parked in bank account for at least 7 days. Sweep-in is good for your own secondary account or the account of parents where transactions are less.
- Each scheduled commercial bank have insurance of Rs. 1 lakh on the saving account protected by Deposit Insurance and Credit Guarantee Corporation, i.e. in worst case scenario you will atleast get that much amount.
BUT DON’T WORRY, IT’S A (rarest) WORST CASE SCENARIO, THE GOVERNMENT AND RBI WONT LET SUCH SCENARIO MATERIALISE.
- You need to keep checking interest rates offered by the bank. Suppose you create FD of 1 lakh with 7% interest rate for a period of 5 years, but 2 years later the bank revise the interest rate to 8% then you need to take advantage of that rate hike. i.e. break the FD and create new with new interest rate. Don’t worry, The penal charges for breaking your FD wont be more than 1% .
- INSURANCE ON DEBIT/CREDIT CARDS : Some banks offer term Insurance on their debit cards. Remember, unlike the hoax circulating on the social media, the debit/ credit cards do not always carry insurance on them. Some of them have insurance upto Rs. 2 lakh but not all of them have this. And none of the credit cards cover road accidental death, they do cover air accident insurance but for that the air ticket must be paid from that card.To avail accidental death insurance, You need to change or upgrade your card. In case of SBI there is separate and clear accidental policy that is secured by SBI life insurance. Its a clear accident policy upto Rs 20 lakh with annual premium of Rs 2000. If you have an SBI account do avail this. pay the premium regularly to keep the policy active.PNB offers insurance for upto 2 years, Bank of maharashtra offers it to only elite account holders, Bank of India have insurance of Rs. 2lakh even for basic debit card but a transaction is must before 45 days of accident. HDFC dont offer it by default to normal account, but its there for womens account, for new banks like kotak bank, you need to pay certain amount to buy such protection. In short don’t assume the insurance, ask your banker.In case of insurance on debit cards, you need to make atleast one transaction of certain amount (decided by bank) before 30-45 days of accident.
- WOMAN’S ACCOUNTSome banks offer special features to account open by female. These features include cashback on card transactions, accidental Insurance etc. Kotak bank, HDFC, ICICI offers such account with attractive features.
Interest earned on all of your saving bank accounts (including savings and Fixed/ recurring deposits) is exempted upto Rs. 10000 under IT act section 80TTA. Interest earned above this limit is taxed as TDS by the bank and bank sends you notice in that regard. If your income is below the taxable limit (Rs 2.5 lakh as of 2018) then you need to fill form 15G and submit it to your bank. Else you need to file Income Tax return and claim the TDS.
A special type of Fixed deposit can be created for Tax saving purpose under 80C of IT act. Such FD has a 5 year lock in period. The interest earned in taxable but the principle is tax free.
Next: Postal payment bank scheme – Postal schemes.
Miscellaneous/ vocabulary :
- Make sure all of the saving account and Fixed deposit accounts have proper nominee. In case of sudden death the nomination helps in easy asset transfer without any nominee the claim process is quite painful. I will describe it separately.
- Make sure your bank have properly functioning net-banking facility.
- Update your PAN and AADHAR information at your bank.
- scheduled commercial banks – banks which are included in the second schedule of RBI Act 1934.
- SIP – systematic investment plan is a way of investing in a mutual fund. more here.