Why should you have a savings bank account?

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The deadly pandemic has given a crucial lesson to everyone, that is, save money and set aside an emergency fund. With growing uncertainties, having a savings account becomes a must. It brings financial discipline and moreover, it keeps us ready for any unforeseen expenses.

To clear all your doubts regarding having a savings account, Money9’s Hemanshi Tewari spoke to Bharat Bhanushali, Head – Products & Technology, Fino Payments Bank.

Why having a Savings Bank account is important?

A savings account is the most common bank account that people use mainly for making deposits and saving money at a moderate interest rate. Thanks to efforts of banks over the decades and more recently to the PMJDY project, almost all households now in India have at least one bank account.

In addition, there are numerous other benefits of having a savings account:

Emergency Corpus: Savings account is the first step towards savings and financial planning. The corpus saved will act as an emergency fund during any unexpected monetary crises – be it household item repair, medical expenses etc. The liquidity of a savings account allows withdrawal of available funds at any given time without the need to take loans.

Asset Protection: The amount or asset in your savings account is free from any impact that is created to your investments by market volatilities. For instance, an investment in real estate or stocks may fetch the investor higher returns but there is also the risk of loss if any unforeseen event happens.

Bill and loan EMI payments: One can pay for all utility bills, loan EMIs and online purchases directly from the savings account – either through net banking, auto-debit or UPI. The account holder needs to ensure sufficient balance is maintained in the savings account to avoid penalty.

Proof of address: A savings account passbook with a valid address and photo identity of the account holder can be used as a proof of address document.

Can Savings bank account result in loss over a time with rising inflation?

One needs to understand the difference between savings and investments. Money in a savings account is easily available to tide over immediate financial needs. As savings account interest rates are generally lower than the prevailing rate of inflation the buying power of the money in a savings account over a period of time reduces.

For instance, you have ₹100 in a savings account that pays a 2% interest rate. After a year, you will have ₹102 in your account. But if the rate of inflation is running at 4%, you would need ₹104 to have the same buying power than you started with.

Savings is the first step towards financial discipline. To beat inflation one should invest the saved amount at regular intervals, wisely. It is important for people to set specific goals say for children’s education, home purchase etc, and invest in financial instruments such as Government bonds, mutual funds, equities, FDs and RDs among others.

How to manage your savings account effectively?

• Make savings a regular habit to ensure corpus creation
• Keep separate savings account to avoid pulling out money from regular account
• Ensure any expected fund or income be routed through the bank account
• Link FDs and RDs to savings account to save regularly
• Savings habit will inculcate financial discipline in kids. Open children’s account for them
• Don’t share account, net banking and ATM card PIN details to anyone to avoid fraud
• Always check account balance to ensure transactions are in place.
• Approach branch manager or concerned grievance platform should there be any suspicious transactions