A savings bank account serves several purposes for an account holder. While this is a safe avenue to park your money or an emergency fund, it also creates a relationship with the bank, giving you access to different avenues of investment.
A good banking relationship further helps unlock a plethora of additional and exclusive benefits offered by the bank, depending on the value of your relationship. These benefits can include fee waivers, product discounts, special privileges and more. However, there are a few purposes the account should not be used for. Here are three mistakes to avoid.
1) It is not an investment tool: Usually savings account interest rates are low. The current range is 3.5% to 4% at most banks. Remember that the savings account is not an investment tool. Use it only to hold excess short-term funds until they can be invested and used elsewhere. Interest should not be your main criteria for selecting a savings account. For example, for Rs 10 lakh, the difference in interest at the end of a year between an account with 3% interest versus one offering 2.5% interest, amounts to just Rs 5 104. Keep some amount as an emergency fund for easy access. Do not keep large sums in the account. More than interest, consider the facilities provided by the account or bank and associated fees. For example, some banks may offer higher ATM withdrawal limits.
2) The minimum balance must be maintained: Most types of savings accounts are required to have a minimum balance, although some, such as salary accounts, do not. It can be as low as Rs 1,000 or much higher depending on the bank and type of account. Failure to maintain a sufficient balance may result in penalties and charges by the bank. It is therefore essential that you identify the amount you can leave in the account to meet the minimum balance criteria. If you think you fall below this limit quite frequently, it is advisable to look for another type of savings account.
3) Many services are chargeable: Several banks may have privilege accounts which offer account holders a range of benefits such as unlimited cash withdrawals, discounts on bank deposits, priority service in banking areas, personal bankers, etc. These may not be available with a regular savings bank account, or if they are there may be a higher service charge. These services are also likely to be available subject to a high monthly or quarterly average account balance. Some other services such as SMS notification service, cash management, additional cash withdrawals at ATMs and many more are chargeable.