Types of Savings and Investment
Types of Savings Bank Account
1. Basic Savings Bank Deposit Accounts (BSBDA) or No-Frills Account:
It is a zero-balance account with no restrictions on minimum and average balance. This account does not offer any unnecessary services or frills. It is mainly for the low-income groups. However, If the balance in a no-frills account exceeds ₹50,000 or if the cumulative value of credit transactions exceeds ₹1 lakh in any financial year, the account will no longer be treated as ‘no frills. The Pradhan Mantri Jan Dhan Account falls under this category.
2. Salary Account:
A Salary Account is one where the organization credits an employer’s monthly salary. This is somewhat like a zero-balance account as there is no minimum balance maintenance requirement. However, if salary is not credited for 3 consecutive months, then it is treated as a Savings Account.
New Age Banking (e-banking & Mobile Banking)
These days, banks offer various facilities through net banking and mobile banking. Fund transfer facilities like National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS), Unified Payment Interface (UPI) and Immediate Payment Service (IMPS) are offered through net banking and mobile banking. IMPS, NEFT and RTGS can be done 24X7. NEFT can be done for any amount till ₹10 lakh, IMPS up to ₹2 lakh per transaction. The minimum amount for an RTGS transaction is ₹2 lakhs, and it does not have any upper limit. These facilities attract nominal charges, which differ from Bank to Bank. Funds can be transferred from one account to another in a matter of seconds through these facilities available on the Bank’s mobile app or through net banking. People can also check their account balances in these ways without having to visit the Bank.
Interest up to ₹10000 earned from savings bank account is exempted from tax under Section 80TTA of the Income Tax law. This exemption can be claimed by both individuals and HUF’s. However, any amount exceeding ₹10,000 will be subject to taxation.
Risk associated with Savings Bank Account
The Deposit Insurance and Credit Guarantee Corporation Scheme of India (DICGC) insures the balance in an account including bank interest up to ₹5 lakhs. In case of a bank winding up, or becoming insolvent, the bank is liable to pay a maximum of ₹5 lakhs per account. For example, suppose Sumit has ₹10 lakhs in a savings account of XYZ Bank.
One day XYZ Bank becomes insolvent. The maximum amount that the bank is liable to give Sumit is ₹5 lakhs.
Sumit would only receive ₹5 lakhs out of his deposit of ₹10 lakhs. Savings bank accounts are not inflation protected. If inflation turns out to be higher than the nominal interest rate of the Savings Account, there would be no real returns available.