Definitely, you will have a savings account. Have you ever thought about the significance of having a right savings bank account has on your personal finances? Understanding various types of savings bank account will not only help you in saving money and also in earning more money.
Now-a-days, it is practically not possible to run the show without a bank account. We all know that the banks are issuing debit cards which we can use at the shopping malls, eat outs… but what we all may not be knowing is you will be able to save money if you bank in a right way.
First you need to see what are all the different bank account options available. Depending upon your requirement you need to choose your right bank account. For example, an entrepreneur will choose a current account and a salaried person will choose a savings bank account.
Savings Bank Account:
As the name suggests, the main purpose of saving bank account is to encourage you save more. The major advantages of savings account is instant liquidity, safety of principal and a decent interest on the account balance maintained. There is no age limit for opening a savings bank account. Even a minor can open savings bank account with his/her natural guardian. Minors who are above the age of 10 years can operate the savings bank account themselves.
Safety of Principal:
The balance which we keep in our savings account is not 100% safe. The balance in the account is insured only for a maximum of Rs. 1 lakh. This amount is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This DICGC insurance is available in all commercial banks. It includes even the foreign bank’s branches operating in India.
When it comes to co-operative banks, you need to make sure whether it is covered with DICGC. If a bank is not paying the premium for the DICGC insurance scheme for 3 consecutive years, then this insurance ceases to exist. So please make sure if you are depositing with a co-operative bank.
You can hold this savings account as a single account holder or you can opt to hold this account jointly with your spouse or any other person. Also you can nominate your next kith and kin in your savings account.
Though the general prevailing rate for savings account is 4.5%, it may vary as the RBI has deregulated the savings account interest rates since 25-10-11. So now the range of interest rate for savings account with different banks is 4.5% to 7%.
Inflation: The deadly demon
As the interest rates are less than 7%, it is not possible to beat inflation by keeping your hard earned money in just savings account. So keeping more money in savings account will not yield you high returns.
The main attraction in savings bank account is its high liquidity. You can withdraw cash from your account from your bank account in the branch during the working hours of bank.
Also you can make use of the ATMs. ATM stands for Automatic Teller Machine. Literally it means Any Time Money. When you need money you can withdraw from any ATM even during the non-working hours of a bank or also on a non-working day.
ATM withdrawals will have a maximum limit for a day. Depends on the type of account you have you can withdraw in a single day to the maximum of Rs.20000, Rs.25000 or Rs.50000.
These days, banks are providing door step service to their priority account holders or preferred clients. When you need money or want to deposit money they can arrange the bank staffs to come to your place and give money or collect money. To be a priority account holder or a preferred client, the minimum balance to be maintained will be higher. Usually 1 lac or above.
The interest which earn from our savings account is exempt from tax to the tune of Rs.10000 per annum from the financial year 2012-13. The interest earned over and above this prescribed limit will be taxed. This will be taxed under the head “Income from other sources”.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org.