Although India is largely an under-banked country, many in urban and semi-urban India have more than one savings account.
While a sizeable portion of these accounts are inherited from previous employments, people also open additional savings account in search of better features or customer service.
Just like any other banking and financial product, having multiple savings accounts comes with its own set of pros and cons. Let us now discuss these points in some detail:
Positives
Increase in daily withdrawal limit from ATM: As each savings account has its own limit on daily ATM withdrawals, having multiple savings account means that you can spread your bank balance across several accounts and increase total withdrawal limit.
For example, assume that you have Rs3 lakh in a savings account whose daily ATM withdrawal limit is Rs 60,000. Now, if you open another savings account with daily withdrawal limit of Rs 60,000 and transfer Rs 60,000 to that account, your daily withdrawal limit will increase to Rs 1.2 lakh while your total bank balance remains the same.
Higher number of free ATM transactions: Most banks have caps on the number of free ATM transactions. Just like in the case of daily ATM withdrawals, having multiple accounts will increase the number of free ATM transactions by managing your ATM transactions between your various savings accounts.
Higher number of branch transactions: Banks levy charges on transactions like clearing and collection of outstation cheques and cash deposits and withdrawals beyond a certain free limit. Therefore, in case you route too many transactions through your savings account, then having two or more savings will allow you to spread those transactions between several accounts, and thereby incur less charges from your bank.
Separation of investment & expense accounts: Most non-banking investment products, such as mutual funds, SIP, insurance and demat accounts require a savings account for making payments and depositing bonus or redemptions.
Using your salary account for investment purposes will necessitate changing details whenever you change your job. You can avoid this by opening a permanent savings account for routing investment transactions. This account can also function as an emergency fund and for parking surplus cash.
You can also open a joint account with your spouse for parking your joint savings and making investments under your joint names. Name your children as the nominees of such accounts.
Alternative option in case of disruptions: Union strikes and technical reasons like link failure often affect the functioning of bank branches. A savings account with another bank will provide an alternative in case you fail to transact through your primary account.
Negatives
Low returns from higher minimum/ average balance: Most banks require you to maintain a minimum/ average balance, which can range from Rs 500 to Rs 2 lakh per month.
Having too many savings accounts will require you to keep higher amount of cash deposit as minimum/ average balance on which you will earn a low interest of 4-7% p.a. Instead, this amount can be invested in fixed deposits or debt mutual funds to earn higher returns.
Risk of non-maintenance charges: Failure to maintain minimum or average balance attracts non-maintenance charges, which can be as high as Rs 450 per month. Many free transactions may also become chargeable due to non-maintenance of minimum/ average balance.
Potentially increased cost: Having multiple savings accounts will translate into having multiple cards. Each card will attract annual charges. These annual charges can be anywhere between Rs 100 and Rs 750 per card. Thus, having multiple savings accounts will mean incurring additional annual charges for each card that you hold, instead of an annual charge for a single bank card.
Tracking multiple accounts: Maintaining multiple savings accounts will result in multiple cheque books, net banking username and passwords, debit card PINs and account balances, which can be difficult to keep track of.
To Sum
The number of savings accounts that you should maintain depends on the type and frequency of your banking transactions.
Opt for a permanent savings account (along with salary account, if you like) in case you make fewer transactions.
On the other hand, consider maintaining multiple savings accounts in case you are routing large volume of transactions (in case of businessmen).
By Naveen Kukreja, Managing Director, PaisaBazaar.com
(Published in The Finapolis on June 1, 2016)