7 things to keep in mind when opening a savings account

Savings accounts are offered by scores of public sector banks, private sector banks, multinational banks, co-operative banks and regional rural banks. Many of these banks, mostly private and nationalized, offer various types of saving accounts to suit different individual needs. As banks package these accounts with attractive offerings and services, we offer you some key factors you should keep in mind when looking to open a savings account.

Interest Rates

The first factor that comes to mind when choosing a savings account is the interest rate. With the deregulation of interest rate regime by the Reserve Bank of India (RBI) in 2011, banks can now set interest rates upon their discretion. At present, Yes Bank offers 7% p.a. for balances exceeding Rs 3 lakhs and 6% p.a. interest for balances below Rs 3 lakhs. Kotak Mahindra Bank offers 6% p.a. interest for balances over Rs 1 lakh whereas depositors can earn 5% p.a. interest on balances below Rs 1 lakh. Note that under the section 80 TTA of the IT Act, you can avail tax deduction of up to Rs 10,000 in interest earned from all bank accounts.

Minimum Balance Criteria

Before opening a savings account, check out the minimum balance required as the penalty associated in case of non-maintenance. This can be as high as Rs 450 per month. Although banks do offer Basic Savings Bank Deposit Account (BSBDA) with no minimum balance requirements, these accounts provide very basic banking services and have restrictions on the number and amount of withdrawals, deposits, transfers and ATM transactions. While SBI has waived off the minimum balance requirements, private banks such as ICICI Bank and Axis Bank require you to maintain a monthly average balance of Rs. 10,000 in their regular savings accounts in metro and urban locations.

Debit Card Offers

Most banks provide free insurance and purchase protection on their debit cards. Some debit cards provide discounts, zero surcharge at petrol pumps, EMI facility, airport lounge access, reward points and cashback offers. If used wisely, debit cards can in fact bring down your transaction costs. Therefore, when choosing a savings account, compare the deals available with the debit card offered.

ATM and branch density

Check the number of ATM centers available to you in your vicinity and in the places or cities frequented by you. As RBI has limited the number of free ATM transactions in other banks’ ATMs to three per month in metro locations, non-availability of your bank ATMs can increase your cash transaction costs.

Quality of service

As most of the services offered at a bank’s branch are now available on the bank’s site and mobile app, you may not have to visit your bank’s premises too often. However, for services such as cash and locker transactions you may still have to visit bank branches. Therefore, carefully consider the quality and promptness of services offered by the bank before opening an account with it. In this aspect, often private banks surpass public sector banks.

Transactions or Service Charges

Before opening a savings bank account, compare the transaction and service charges levied by banks on services such as outstation cheque collection, cheque return charges, annual charges for debit cards and charges for issuing duplicate pass books, statements and cheque books. Usually, public sector banks have lower transaction and service charges. For instance, they may charge you Rs 50–Rs100 for cheque returns whereas private banks may charge you anywhere from Rs 400 to Rs 500.

Auto-sweep facilities

This facility brings together the liquidity of a savings account and high returns of term deposits. Under this facility, if your savings bank account crosses a threshold limit, the amount beyond that limit is automatically converted into a fixed deposit, earning higher interests for you. And when you fail to meet the minimum balance requirement, the amount parked with the fixed deposit is automatically transferred to your savings account.

Thus, financial discipline and a proper research on saving accounts before settling on any particular account can not only increase the ease of financial transactions but also bring down your cost of financial transactions.

Table: Comparison of some of the services offered by banks via regular savings accounts

(The author of the article is the Managing Director of Paisabazaar.com)