You probably have a savings bank account, but chances are you have not given much thought to the impact banking has on your finances
04-Sep-2013 •Research Desk
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.
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 a savings bank account is its high liquidity, safety and a moderate interest on the savings.
The capital in a savings bank account is not completely safe. Balance in the account including interest earned, 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.
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 and savings. The savings bank account offers several other facilities and features that one should explore to make optimum use of cash flows.
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 balance in the account. This rate varies across banks since the Reserve Bank of India deregulated the savings bank deposit interest rate on October 25, 2011. Banks are now free to determine the interest on the balance in a savings bank account, which has to be uniform for all types of accounts up to Rs 1 lakh in an account but varies for accounts with a higher balance.
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 ATM allows 24-hour withdrawals within limits in a single day which varies across banks and also 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 weekdays and from 9.00 AM to 1.30 PM on Saturdays for real time settlement.
You can close the bank account on any day within the banking hours.
Balance, including interest 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.
Interest earned in the savings bank account up to Rs 10,000 per annum is tax exempt from 2012-13. Interest amount above this limit is treated as income and taxed accordingly. The interest earned is taxable under the head 'Income from other sources'.
It goes by many names, such as: online banking, Internet banking, PC banking, home banking, and electronic banking. Most allow you to access your account online which is convenient and you can control your account from anywhere. Online banking permits you to pay bills online, transfer money between accounts, online shopping, and access account information at any time and manage different types of accounts with a particular bank. Online banking opens a new window to your finances; you can invest in stocks, buy insurance, pay renewal premiums, and recharge your mobile phone, pay credit card bills and even pay taxes depending on the facilities offered by your bank.
Is online banking safe?
Online banking takes security very seriously and uses encryption technology to protect account holders 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 make a lot of bill payments each month; online banking can save you time writing out cheques and associated costs
· You can track your expenses and manage your finances efficiently
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 handsets, 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.
Various types of Savings Bank Account on Offer
No Frills account is aimed at those with limited cashflows. This account allows you to bank with a zero minimum balance and has a stipulated minimum or average balance.
If the balance in this 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 'No Frills'. The account will be required to satisfy the conditions and criteria applicable for a regular savings account and be subject to relevant charges.
Salary Account 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 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 as stipulated by a bank is created in multiples of sums stipulated by the bank 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 as stipulated by the particular bank on a last-in-first-out (LIFO) basis when the balance in the savings account falls below the specified minimum sum. 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 at 12.36 per cent is applicable on facilities offered with this account.
Miscellaneous Accounts cater to different target groups by bundling features like:
Privilege banking: offers additional services for a fee or on maintaining higher minimum balance
Children's Account: targeted at children, they can operate this account based on pre-set conditions by the parent or guardian
Account for Women: Targeted at women with special features 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
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
· These days, you can also also open an online account without visiting the bank branch
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. The Savings bank rules can also be read in the passbook.
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 the 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