How Many Savings Account you should Hold is classic Personal Finance dilemma. It can be loosely correlated to Prisoner’s dilemma between your mind and heart. There is no right or wrong answer to this question. In my opinion, i consider Savings Account as most important enabler to financial planning. It tells how good you are in financial planning. In my financial journey so far, i have observed 3 set of individuals. First set is those who have only 1 Savings Account. The rational is that they are not good in managing multiple Savings Account and end up paying penalty for non-maintenance of AQB (Average Quarterly Balance). Second Set is deal seekers, they have every reason in this world to open new savings account. One of my client has 6 Savings Account and recently opened 7th one because bank is offering 6% interest rate. Last set, individuals who have linked financial goal / objective / rational behind each Savings Account. They have multiple Savings Account but each linked to financial planning.
Advantages of Multiple Savings Account
1. Urgent Need of Funds: This i experienced personally. One day, suddenly there was urgent need to funds. For each debit card linked to Savings Account there is a max limit per day on fund withdrawal. Thank god, i had multiple Savings Account / Debit cards and i was able to manage the situation.
2. Technical Issues: My brother had only 1 Savings Account with leading private bank. On his trip to Bangalore, he was in need of funds and was not carrying his cheque book. Unfortunately same day, the ATM network of the bank was down and he was stuck in catch 22 situation. Even branch network of bank was down. Currently, with an increase in usage of debit cards banks infrastructure is not ready to handle huge load. I observe downtime of at-least once or twice in a month for leading banks. In such situations multiple Savings Account come handy.
3. Convenience: You may not always find bank branch or ATM near you. With the limit on no of free transactions and non-availability of your Savings Account Bank ATM near you, it is convenient if you hold multiple bank Accounts. On an average if your ATM withdrawal is twice a week then you should have min 2 accounts to avoid paying for ATM Withdrawal.
4. Charges: If you are using some banking facility / services on frequent basis then multiple accounts makes sense. Say for example you receive foreign remittance or you need bank locker then it is always advisable to opt for bank account which levy min charges. In my case, i had account with one of the leading PSU bank and for every foreign remittance they charged 15 USD which is very high. After online research, i found that State Bank of India charge only 2 USD for same. Therefore i opened account in SBI but it doesn’t mean that i open 8-10 accounts. I closed my existing account and then opened new account with SBI keeping no of accounts same.
5. Hedge Risk: It is highly unlikely that banking system will collapse in India but such instances cannot be ruled out. During college days, my Savings Account was with Global Trust Bank. The bank went burst and my most of the savings were in Global Trust Bank due to emotional attachment. Bank informed me that as per Deposit Insurance and Credit Guarantee Corporation (DICGC), each bank depositor is only insured upto a max sum of Rs 1 lakh in case of cancellation of bank’s license / merger / amalgamation / reconstruction etc. For next 6 months, i had sleepless nights till i received my full amount post acquisition of Global Trust Bank by Oriental Bank of Commerce. It is always advisable to hedge risk by keeping small amount in multiple banks.
6. Online Offers: If you are online shopper then you might have observed that cash back and other discount offers are available on rotation basis with banks. To avail such offers, you can always have multiple accounts. I am not advocating multiple Savings Account only for offers, it can be icing on the cake. Real objective is different which i will discuss in last point.
7. Higher Interest Rate: RBI de-regulated Savings Account Interest Rate with effect from Oct 25, 2011. Some banks offer higher interest rate of upto 7% subject to certain conditions. Some other banks offer higher interest rate on Bank FD’s. Higher interest rate is beneficial, if you have extra funds for investment or contingency funds can fetch higher interest rate.
8. Financial Planning: Last but not the least and most crucial point. Multiple Savings Account help in financial planning. You should open each account with financial objective linked to it. It will help in better financial management. Let me share my experience on Savings Account and financial objective.
(a) Salary Account: Salary account should always be kept separate and only to receive salary. In short, it should be always Zero Balance only :). Salary Account is bundled with lot of freebies, discounts and goodies. There is a dark side to it also. Salary account is special account i.e. tie up of your company with the bank. Not many people are aware that your company reserves the right to reverse any payment in your salary account without your permission. Quite shocking !!!. I was also not aware but i observed this in one of my previous company. One of my colleague resigned immediately after receiving bonus in her account. The bonus was reversed by the company without her permission. Therefore financial objective of this account is only to receive salary.
(b) Household Expenditure: This account should take care of monthly household expenses and any short term expenses like school fees etc. It will help you to understand your spending pattern and expense allocation.
(c) Investment and Financial Planning: This account should be joint between husband and wife so that they should have complete knowledge about financial investments. You can invest your monthly savings through this Savings Account. You should keep insurance premium due in next 3 months in this account. 3 / 6 months contingency funds can also be retained in this account. Monthly EMI of loans i.e. Home Loan, Personal Loan etc should be debited from this account. The cheque book and debit card of this account should be kept in bank locker so that you cannot spend from this account. The nominee of this account should be your children.
(d) Fun / Expense Account: If you planning to buy any Home Appliances, Foreign Holiday or Car. Instead of availing loan, you can plan for future expenses. The best financial instrument is RD (Recurring Deposit). As i always share this example, suppose i am planning foreign holidays in Dec this year. Based on my estimated expenditure, i can open RD so that i can utilize maturity amount for foreign holidays. You can also park money in liquid or short term debt funds.
In my opinion min 4 Savings Account are required which can be linked to each of the above mentioned financial objectives. You may open more accounts for other financial objectives like Marriage and Education of kids, Retirement Planning etc.
Disadvantages of Multiple Savings Account
1. Cost: It is one of the major disadvantage specially when banks have started charging fees for most of the services. For example, if you have 5 Savings Account and each charges Rs 200 annually for debit card then Rs 1000 is cost.
2. AQB (Average Quarterly Balance): For private banks, AQB requirement is Rs 5000 / Rs 10000 and for PSU Banks, its Rs 1000. If you have mix of Savings Account then you need to spare atleast Rs 30,000 on regular basis to maintain AQB. Recently banks have increased charges for non-maintenance of AQB w.e.f 1st April, 2015.
3. Hassle: Until unless you are planning to maintain healthy balance in Savings Account, Its a hassle to maintain low balance savings account. You need to keep track of multiple cheque books, debit cards, net banking user name / passwords etc.
To summarize, To hold multiple savings account has its own advantages and disadvantages. You may evaluate the same depending on your requirement. If you are planning to open only 1 or 2 accounts then you may open in bank with highest no of branches / ATM network. It is always advisable to open 1 account in bank with strong regional presence. For example, in Karnataka you can open in State Bank of Mysore or in AP, you can open in Andhra Bank. It only makes sense to open multiple savings account, if it is linked to financial goal / objective. If you can manage all your goals through single account then nothing like that.
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