Know your savings account better: See what you get for free

A savings account is one of the key instruments to park money in hand, a pool from which one can make payment whenever one needs. It’s a long-term, fundamental money management tool that can help you meet numerous financial needs.

Here are a few benefits of a savings account that most of us are not aware of.

Rs 5 lakh insurance

As per Reserve Bank of India guidelines, deposits with all commercial banks and cooperative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). As per current DICGC rules, each depositor in a bank is insured up to Rs 5 lakh for both the principal and interest amount on deposits held by him in that particular bank.

This includes all deposits held by a person in current account, savings account, fixed deposits and so on. If the total of all the deposits held by an individual in a single bank exceed Rs 5 lakh, then he/she will be able to get only Rs 5 lakh inclusive of principal and interest amount if the bank goes bankrupt.

Different transactions

A savings account can be used to send and receive payments and it serves as a base for all transactions. Every transaction in a saving account can be done either by net banking, mobile banking, debit card, cheque or withdrawal slips.

Financial transactions can also be carried out swiftly by using NEFT/RTGS/IMPS facilities. Within a minute one can transfer an amount to anywhere across the globe. Except savings accounts, no account can give the customers these advantages.

Passbook, cheques

Almost all savings accounts offer this facility. When you open a savings account, you get a passbook and cheque consisting of 10 leaves carrying your account details. While the passbook lists your transactions, you can withdraw cash using the cheque leaves.

You can also issue a cheque to someone. Also, most savings accounts offer debit card facility too, that is the most common way of withdrawing money from a savings account nowadays.

Multiple freebies

Many banks offer additional benefits along with their saving account. Some banks allow you to open a demat account along with savings accounts for free, which can be used for trading in the stock markets.

Also, some banks may offer you a free-locker facility or locker facility with minimum charge when you open a savings account with them. Besides life insurance cover is also offered by some private bank against a very nominal cost.

Keep in mind

A savings account can be opened by persons belonging to all age groups including minors, provided they have the required documents and complete the KYC procedures.

As per RBI mandate, a minor above 10 years of age can operate a savings account independently, if desired. Savings account is the simplest way of saving money and carrying out regular expenditures.

Most people use savings accounts as a base to meet their liquid investments outside of other demand accounts and cash. It also makes access to funds easier.

Cons

There are two shortcomings of a savings account. First, the interest rate is low. Most commercial banks offer interest rate between 2.7% and 3% below Rs 1 lakh balance in savings accounts.

A few banks do offer interest of 6% and above but the balance must be above Rs 1 lakh. Second, almost all banks stipulate that all customers have to maintain an average minimum monthly balance.

If the balance is not maintained, a customer is liable to pay penalty. The minimum average balance differs across banks and so does the penalty. Generally, for an urban branch it varies between Rs 2,000 and Rs 5,000 and for rural branch is varies between Rs 1,000 and Rs 2,000.

According to unofficial data till December 2017 there were approximately 160 crore savings bank accounts in the country.