You probably have a savings bank account, but chances are you have not given much thought to the impact banking has on your finances. Being knowledgeable about different types of savings bank accounts can save you money.
It’s hard to get by without a bank account these days. Banks are essential to making the economy work. Banks offer loans that you can use to buy a house or a car, they issue debit cards that you can use to buy goods you want to buy. You may not have realised, though, that you can also save money by banking smartly. This chapter will describe the several savings bank options that are available.
A bank account is a financial account with a banking institution, recording the financial transactions between you (the account holder) and the bank. The purpose of a bank account is to encourage savings and bringing financial transactions into the banking network. There are several types of bank accounts that you can opt for depending on your needs; for instance a businessman will prefer a current account compared to a salaried individual who will need a savings bank account.
Savings Bank Account
Savings bank accounts are meant to promote the habit of saving among people while allowing them to use their funds when required. The main advantage of savings bank account is its high liquidity, safety and a moderate interest on the savings.
Investment Objective and Risks
The savings bank account is the traditional home for cash savings. Today, a savings bank account is a necessity and is an essential component of an individual’s finances. The most important reason to open an account is the automatic access that it offers to other financial instruments such as investments, loans, savings and deposits. The savings bank account offers several other facilities and features that one should find out to make optimum use of one’s cash flows.
The capital in a savings bank account is not completely safe. Balance in each account including interest earned by the account is insured up to a maximum of Rs 1 lakh. This sum is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for all commercial banks, including the branches of foreign banks functioning in India, local area banks and regional rural banks. In case of co-operative banks, you will need to check if it is covered under the DICGC because if a bank has not been paying the premium for the insurance scheme for three consecutive years, it ceases to be insured.
A savings bank account does not provide protection against inflation, which means whenever inflation is above the rate that a savings bank account earns; the account earns no real returns.
The interest rate in a savings bank is guaranteed up to the first Rs 1 lakh in the account, which is currently 4.0 per cent and is reviewed by the Reserve Bank of India from time to time.
The savings bank account is highly liquid and one can withdraw cash from one’s account from the branch during the banking hours. Today, the automated teller machine (ATM) access is offered by most banks to savings bank account holders. The ATM allows 24-hour withdrawals within limits that start from Rs 25,000 in a single day and can go up depending on the account type. When settling payments through real time gross settlement (RTGS) feature; transactions are possible from 9.00 AM to 4.30 PM on week days and from 9.00 AM to 1.30 PM on Saturdays for real time settlement.
You can close your account with the bank on any day you wish within the banking hours.
Balance, including interests in an account above Rs 1 lakh is exposed to the risk of a bank folding up. None of the public sector banks have folded up in India, which is not the case for co-operative banks. Make sure you are choosing a bank which has strong credentials and is safe.
Opening a savings bank account does not entail credit rating.
The amount credited in the savings bank account is treated as income and taxed accordingly, unless accounted for otherwise. Likewise, the interest earned in a saving bank account is taxable under the head ‘Income from other sources’.
Is online banking safe?
Online banking takes security very seriously and uses encryption technology to protect accountholders from hackers and other security risks. However, you should not take the bank’s word for it blindly; explore your bank’s website and look for the security provisions it offers. Online banking works on passwords and the onus of safety partly rests with you.
Is online banking for you?
It’s most beneficial if: • You are wired with online access.
• You pay a lot of bills each month; online banking can save you not only the trips to pay bills, but also the trouble of writing out cheques and associated costs.
• You can track your expenses and manage your finances efficiently.
How does it work?
Websites differ across banks, but managing your finances online should be as simple as logging on to the bank’s website and entering you user ID and password to get started. The site will then guide you through actions you seek to perform, be it viewing the transaction history of your account, request for a cheque book, account statements, stop payment requests or for any other banking facility that you need.
Banking on the Move
The advent of mobile telephony has touched our lives like never before. Today, banks are making it easier than ever for account holders to access account information on their mobile devices. Some banks are offering new services or improving existing ones that allow people to access their accounts while on the go.
You access your bank account through your registered mobile phone with your bank. The features offered in mobile banking are of two types; one-way, where your bank sends you mobile updates; the other which is a two-way service where you send a request, which the bank acknowledges.
With evolving technology and improving mobile handset, banks are creating software for mobile banking interface, opening yet another window to banking. With inter-bank mobile payment services (IMPS), you can transfer funds from your account to another account using your mobile phone if the account where money is being transferred is also IMPS enabled. Currently IMPS transaction is limited to Rs 50,000 per day per account.
How IMPS Works to transfer funds
• Register your bank account with your bank for mobile banking services.
• Get the mobile personal identification number (MPIN) and mobile money identity number (MMID) from your bank.
• Download and activate the mobile application on your phone.
• Get the MMID and MPIN of the person to whom you wish to transfer funds.
• Use the mobile banking menu to transfer funds.
• Check the sms (short message service) on your mobile phone confirming debit to your account.
How IMPS Works to receive funds
• Register your bank account with your bank for mobile banking.
• Get the MMID from your bank.
• Share the MMID and your mobile number with the remitter.
• Check sms confirming credit to your account.
Various Types of Savings Bank Account on Offer
• This account is aimed at making your banking transaction simple.
• This account allows you to bank with a zero minimum balance.
• The account does not stipulate any minimum or average balance.
If the balance in a no frills account exceeds Rs 50,000 or if the cumulative value of credit transactions exceeds Rs 1 lakh in any financial year, the account will no longer be treated as a No Frills savings account. The account will be required to satisfy the conditions and criteria applicable for a regular savings account and be subject to relevant charges.
• This account is offered to all salaried employees of companies banking with a particular bank.
• The account comes with concessions on maintaining minimum balance, number of withdrawals, additional cheque book facility and other features including free ATM cum debit card in most instances.
• One can issue multi-city cheques at no additional costs.
Sweep-in or Multiplier Account
• This account provides the liquidity of a savings account coupled with high interest earnings of a fixed deposit which is achieved through a fixed-deposit linked to the savings account.
• The balance in this account is never idle. Fixed deposit(s) from the surplus funds in your savings bank account subject to a minimum balance of Rs 10,000 is created in multiples of Rs 5,000 for tenure of one year or more as instructed and provides maximum returns.
• The account also provides maximum liquidity. All linked fixed deposits are enabled for automatic reverse sweep in multiples of Rs 5,000 on a last-in-first-out (LIFO) basis when the balance in the savings account falls below Rs 10,000. This way the amount that is reversed earns interest rates applicable for the period that the deposit was held with the bank.
Features vary across banks and also depend on the bank’s relationship with the corporate client. Service tax @ 10.30 % is applicable over and above the charges levied on facilities offered with this account.
Banks have created accounts to cater to different target groups by bundling features that are addressed to such groups:
• Privilege banking: offers additional services for a fee or on maintaining higher minimum balance.
• Children’s account: targeted at children, these accounts can be operated by them based on pre-set conditions by the parent or guardian.
• Women’s account: Targeted at women with special features that address their unique needs, such as privilege cards and special discounts.
• Senior Citizen account: Aimed at those above 60 years, the account offers access to special counters in the bank branch besides additional interest on deposits and low or no minimum balance maintenance requirements.
Where to Open an Account
You can open an account at any nationalised, private sector or foreign bank.
How to Open an Account
Once you have selected the bank to open an account you will need the following documents:
• An account opening form which the bank will provide.
• Two passport size photographs.
• Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s ID or ration card.
• Carry original identity proof for verification at the time of account opening.
The Savings bank rules can be read in the passbook.
How to Operate an Account?
• You need a pay-in slip with the initial account opening sum to be credited into your account.
• You get a saving bank passbook with your photo affixed stating the nominee. However, some banks, especially private and foreign banks do not issue a passbook and instead deliver an account statement.
Types of Transactions
• Cash, Cheque, Demand draft, Money transfer and ECS.
The joint account holders can give any of the following mandates for the disposal of balance, which can be modified by the consent of all the account holders
• Either or Survivor: If the account is held by two individuals say, A and B, the final balance along with applicable interest will be paid to survivor on death of any one of the account holders.
• Anyone or Survivor(s): If the account is held by more than two individuals say, A, B and C, the final balance along with interest, if applicable, will be paid to the survivor on death of any two account holders.
Points to Ponder
Penalties when the balance falls below the minimum stipulated sum
• Penalty when cheques are returned
• Collection facilities offered and applicable charges
• Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals and cash drawings
Tips and Strategies
Search for a savings bank account with this criterion:
• Does the bank offer different types of savings account?
• Does the bank provide free debit card with no annual fees?
• Is the account insured?
• Does the bank offer payable-at-par cheques all over India?
You need to be a Resident Indian
· No age is specified and minors can open an account with the natural guardian operating it
· Minors above age 10 can operate the account on their own
Account opening fee (Rs )
No fees, but a minimum cash deposit is required to open an account
Account maintenance and charges
· Minimum balance required depending on account location which could be urban, semi-urban or rural
· Minimum balance required depending on account type such as no-frills, savings, salary-linked, deposit-linked
· Predefined number of transactions per month are free, beyond which transactions are charged for
· 4.0 per cent per annum compounded half yearly up to Rs 1 lakh
· Variable interest rate on balance above Rs 1 lakh in the account
· The interest for the month is calculated on the lowest balance available in the account from 10th of a month to the last date of the month
Other features offered
· Cheque book facility, ATM cum debit card, Access to locker (fee charged based on locker size), Internet banking, Phone banking, Mobile banking
· As long as the account is active
Account holding categories
· Individual, Joint, Hindu Undivided Families (HUF) not engaged in any trading or business activity, Minor through the guardian
· Facility is available