By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com
(Published in Financial Express.com on 16 Dec 2016)
Though a sizeable chunk of India’s population remains unbanked, a majority of those living in urban areas and metros, have bank accounts. Many hold more than one savings account as they open additional accounts to avail better account features. Using multiple savings accounts has its advantages and disadvantages.
Benefits of multiple savings accounts
Higher ATM withdrawal: As all savings accounts come with their own daily ATM withdrawal limits, each additional savings account adds to your total withdrawal limit. Thus, multiple savings accounts will allow you to distribute your bank balance across several accounts and withdraw more from ATMs, as and when required.
Most savings accounts have upper limits on the number of free ATM transactions in a month. As in the case of daily ATM withdrawals, multiple accounts increase the number of free ATM transactions available to you. This allows you to reduce your cost of cash withdrawal by distributing your ATM transactions between several savings accounts.
Higher branch transactions: Most savings accounts charge for cheque clearing, cash deposit and cash withdrawals beyond a certain limit. Having two or more savings accounts allows you to distribute those transactions between several accounts and reduce your overall banking costs.
Payments for purchase of mutual funds, insurance products, bonds and equity shares are routed through savings accounts. Same is the case for receiving dividends, bonus and redemption proceeds. If you use your salary account for routing your investments, you will need to change your account details with every job change. Avoid this by opening a permanent savings account for routing investments and parking surplus cash. Use your salary account to meet your daily expenses.
More offers on debit cards: Most debit cards come with cashback offers, discounts and reward points. Availing multiple savings accounts will allow you to make point of sale and online transactions on the basis of best offer available on your cards.
Disadvantages of multiple accounts
Lower returns: You need to maintain an average/minimum monthly balance in each savings account. This can be R500-2 lakh per month in each savings account. This amount will earn you only 4–7% interest per annum whereas investing it in fixed deposits or debt mutual funds will earn you higher interest.
Non-maintenance charges: Non-maintenance of average or minimum balance attracts non-maintenance charges of up to R450 per month. Even free transactions may also become chargeable because of non-maintenance of average/minimum balance.
Increased cost: Multiple savings accounts may translate into multiple cards. As the annual charges of an ATM/debit card are R100-750, multiple savings accounts may lead to higher annual charges on cards. Having multiple savings accounts means you have multiple cheque books, debit card PINs, average balances, and net banking user name and passwords to keep track of.
The number of your savings accounts should depend on the frequency and type of your banking transactions. Opt for a permanent savings account (apart from salary account in case of salaried people) in case you make fewer transactions. Consider more than two savings accounts only when you are routing large volumes and making several transactions through your savings accounts.