A savings bank account can literally help you save some money. Barring a few banks offering 6 percent on savings account balances, most of them pay you a not-so-attractive rate of interest of 3.5 percent on the balance, but also it brings you a whole lot of services and benefits which can be tapped to create wealth. Here are five reasons you should not ignore your good old savings account.
1-Stepping stone: A savings account is seen by many money experts as a means to accumulate wealth. However, not many millennials look at it that way. Invariably many of us end up with multiple bank accounts by the time we turn thirty – thanks to changing jobs and changing cities.
However, such a situation must be avoided. Not only does it make us maintain minimum balances or get saddled with a list of dormant accounts, it also means messed up finances. Changing jobs cannot be avoided and you may keep getting a new bank account with each jump, but ensure that you keep one bank account that is used as a ‘savings and investment’ account. This helps to streamline your finances, acting as a firm stepping stone that ensures you have a smooth financial journey.
2- Charges: If you ignore bank accounts and let them dry up, there is a chance that the bank will levy penal charges for non-maintenance of minimum balance. This will burn an unnecessary hole in your pocket. You should also note all other charges that come with each savings bank account. Some savings accounts offer many free facilities such as free fund transfers, demand draft, bill pay services. If you know about them well in advance, you can make the most of them.
3- Means to pay: Though we pay our equated monthly installments for all loans out of our savings account, we rarely use it to pay bills. If you are not using credit cards and debit cards, your bills can be paid before the due date by issuing standing instructions on your savings account. Most new generation banks offer innovative bill services along with their savings account product. Such bill pay programmes give customers reward points that can later be redeemed for goodies or gift-vouchers.
Timely payment of bills, including credit card outstanding by way of standing instruction on savings bank account, ensures that there is no wastage of money because of late payment charges or penal charges.
4- Investments: A savings account is an enabler when it comes to the world of investment. You cannot invest in mutual funds without a bank account. The bank account gives you access to traditional products such as recurring deposits and fixed deposits. These products with low risk can be of immense importance if you are looking for some solutions to save for a financial goal that is less than couple of years away from being realised.
Some bank accounts offer you facilities such as auto sweep. It invests idle sum lying in your bank account into fixed deposits if the sum exceeds a threshold, say Rs 25,000. This ensures that even if you forget to invest money in your account, the money is put to work. Savings accounts with such facilities should be preferred over the rest.
5-Tax on saving bank account interest: Interest paid on the balance in the saving bank account is taxable in the hands of the bank account holder. However, there is a way to reduce the tax impact. Section 80 TTA provides for a deduction upto Rs 10,000 for aggregate of interest earned by you on all the saving bank account whether with bank or a post office. Ensure that you report your interest income on savings account while filing your income tax returns and pay tax on it, if it exceeds the threshold.