Almost everyone opens a savings bank account in the bank, but it is important to understand that why it is important to understand that choosing the right savings bank account is equally important apart from building other investment portfolios.
Wise men say money often works for people who work at it. As we juggle between our various financial commitments and priorities, there are a number of factors that we have to keep in mind when building an investment portfolio –the current financial situation, liquidity, short, medium and long-term financial goals, risk profile, tax considerations, etc. We are always on the lookout for attractive investment opportunities to invest our hard-earned money.
In this quest to build ourselves a surplus for the future, we must not overlook the importance of liquidity. While we plan for the future, it is just as essential to ensure that we have immediate access to a part of our capital in case of any unforeseen situation. On an average a customer keeps 3months of fixed expenses as contingency kitty. Over the years, the humble savings bank account has been among the most trusted options to maintain this kitty liquidity. A savings bank account scores over liquid funds or term deposits as customers have the flexibility to deposit, instant access to funds at any time and simplicity of taxation.
In general, people tend to treat the money in their savings bank accounts as idle money. Money that does not earn them any return. However, in the present times, this simple liquidity instrument is gaining popularity among savers, who not only seek the comfort of accessing their money at will but also seek superior returns.
If you choose wisely, your savings account can also earn you more money. It is true that many private and public sector banks have recently reduced interest rates on savings accounts to 3.5 per cent. However, there are banks which continue to offer higher interest rates on savings account balances – up to 6 per cent per annum risk-free return on your savings account balance. On a daily balance of more than Rs. 100,000, you can earn over 1.7 times the return with zero risk, by simply choosing a higher paying savings account at the right bank!
This is especially beneficial in a falling interest rate environment – interest rates on the one-year term deposit have fallen to 6.5 per cent in 2017 from 9.1 per cent in 2014, while those on the three-year term deposit have reduced from 8.75 per cent to 6.25 per cent during the same period. Reaping the benefits of up to 6 per cent per annum on savings account balances at a time when interest rates are on a downward trajectory is an excellent opportunity to let your money work that extra harder for you.A rough calculation shows that depositors in India are losing out on around Rs 50,000 crore annually in lost interest by continuing to keep their money in low-interest savings accounts.
Additionally, to get the 6 per cent advantage a customer doesn’t have to visit a branch or complete complex documentation. A savings bank account can now be opened in under 5 minutes from anywhere, anytime using your smartphone or on the web.
From a tax perspective too, interest income earned from a savings account up to Rs. 10,000 is exempted from tax under section 80TTA. In addition, parents can claim a tax exemption up to Rs. 1500 per minor child, for interest earned on deposits made in the name of the minor. While investment options like liquid funds have a complex taxation structure based on the tax slab of the individual and time frame for which the funds are held.
In a nutshell, a savings account can be an important tool in your portfolio when used in a prudent manner. Choosing the right savings account can help you make your money work and earn for you.