Opening a savings account is the first step toward availing banking services that allow us to accumulate our savings and earn interest on them. With the increasing trend of digital payments, it has become all the more important to choose a savings account that provides better features at lower operating costs.
Here are some tips for choosing the savings account that would suit your needs the most.
Choosing a savings account that provides a high interest rate
Most consumers look for a savings account that provides relatively higher interest rate than others. An account providing higher interest on your savings would effectively increase overall return even if you have to pay some account maintenance charges.
With the deregulation of interest rates on savings accounts, various banks provide competitive interest rates to add more customers. Where most public sector banks provide interest rates in the range of 2.5% to 3.5%, a few private sector banks provide interest up to 6.75% with small finance banks reaching up to a maximum of 7% p.a.
However, it is worth noting that these interest rates are provided only on a specified amount in the savings account. Thus, one should stay updated with the changing interest rates. However, you should know that the interest earned above Rs 10,000 across all your savings accounts is taxable as per the tax slab you fall into.
Savings Account with Low Average Monthly Balance (AMB) Requirement for more flexibility
Some savings accounts require account holders to maintain a minimum average monthly balance and failing to meet this requirement attracts a penalty. This limitation is compensated equally in the form of various other benefits, including complementary services such as insurance cover, dedicated relationships manager, pre-approved loan offers, online DD generation, free cheque books, etc.
Many premium savings accounts carry high AMB in the range of Rs 50,000 to Rs 1 lakh but the interest earned on this amount is relatively lower.
There are many accounts such as PM Jan Dhan Yojana (PMJDY) accounts, online accounts and BSBDA (Basic Savings Bank Deposits Account) where account holders have no AMB requirements but have fewer free services such as a cap on ATM withdrawals, no cheque books, no debit cards, etc.
Hidden Charges on the Savings Account can lower the effective interest earned
Instead of finalizing the savings account just based on interest rates, go through the schedule of charges. These charges may include annual maintenance charges, ATM fees, penalty on non-maintenance of AMB, transaction charges, fund transfer fees, ATM transaction fees on exceeding the free limit, etc.
Many premium savings accounts carry annual maintenance charges that may impact the overall interest earned. Some accounts that have low or no AMB requirements also have a limited free ATM transactions limit.
If you perform a lot of ATM transactions, you should consider choosing an account that provides more free transactions even if the AMB is relatively higher.
Additional benefits in the form of exclusive deals and discounts
Several banks provide savings account options with many additional benefits such as complimentary movie tickets, airport and railway lounge accesses, low/no cost EMI on online purchases, complimentary subscription to various portals and OTT platforms, cashback on utility bill payments, etc.
Tie-ups with various platforms allow these banks to provide healthy discounts and cashback to users that can be beneficial for frequent users of these services.
The rewards program on debit cards offered with privilege accounts allows account holders to redeem reward points for exclusive merchandise and complimentary benefits.
People who can manage the AMB requirements for the savings account can opt for these accounts and avail exclusive offers, deals and discounts to save more on their purchases.
(By Gaurav Aggarwal, Senior Director, Paisabazaar.com)