Having a savings account is the first step toward financial independence. With a savings account, you can invest money and earn interest. Your money grows over time. A savings account allows you to make transactions using your account and receive a salary and other payments. You can also keep track of expenses and income. There are tax benefits, which we will discuss later in the post.
With the digitization of banking services, you can now open digital savings accounts. They are simple and useful. Depending on individual needs, a savings account can also serve as an emergency fund or a reserve for future expenses like holidays, education, marriage, etc.
Types of Savings Accounts and Their Purposes
There are different types of savings accounts. Here, we will explain some of the most popular savings accounts.
- Zero Balance Account
The main purpose of a basic savings bank account is to allow individuals from even the most marginalised group of people, who otherwise can’t afford to maintain a minimum balance in their accounts, to have access to the bare minimum banking facilities and deliver the various government schemes and subsidies via these accounts. This free savings account is often called a ‘Basic Savings Bank Deposit Account’ or BSBDA in the banking vocabulary. Banks do not charge fees from customers who maintain a zero balance in these accounts. These accounts earn interest on balances but offer very few services, such as cash withdrawals or deposits.
- Regular Savings Account
One can enjoy more benefits with this type of account than a zero-balance account. It offers priority service at branches, ATM withdrawals without transaction charges, chequebooks, and online transactions. Also, banks offer varied interest rates on regular savings accounts based on multiple factors. However, it requires maintaining a minimum balance every month; banks may levy charges on accounts that fail to do so.
These accounts are aimed at customers from lower-middle and middle-class groups who seek higher interests, with all the modern banking facilities with effortless access to the saved money via multiple channels, including international debit cards, internet banking, mobile banking, etc.
- Salary Account
As the name suggests, these accounts are opened by employees, allowing them to receive salaries directly into their accounts. Salary accounts, which are digital savings accounts, provide convenience to both employees and the organisation as it minimises the chances of any delay or loss during dealing with the cash physically for the staff and streamlines the salary payment system for the employers, saving the company time and money.
- Savings Account for Women
This account is designed for women who want to be financially independent and save money for their personal or professional needs. Apart from offering everything a regular savings account provides, this account may give several additional facilities, such as discounted home loans, easy access to loans for self-employment or business purposes, and more, depending on the bank.
- Savings Account for Senior Citizens
Keeping persons above 60 years of age in mind, this account is meant to help senior citizens manage their money better with decent interest rates and a range of attractive perks, including waiver of charges on certain services and products, enabling them to make the most of their money.
- Savings Account for Minors
As banks in India normally do not allow minors to operate savings accounts independently, these accounts can only be opened by parents or guardians on behalf of their children below 18. This can be a helpful tool for parents who want to teach their kids how to manage money and save and grow it over the long term. Such accounts are available across all major banks in India.
Tax Implications on Savings Accounts
Contrary to popular belief, interests earned in a savings account are taxable and should be mentioned as “Income from Other Sources” in the tax return. The tax rate, however, will be determined according to the tax slab the account holder comes under. That being said, the tax payee is entitled to Rs. 10,000 maximum yearly deduction on accumulated interest from their savings account.
A savings account is an important financial decision. Choosing the right kind of savings account is vital. Banks offer different types of savings accounts with varying features and benefits.
Since opening a digital savings account has become effortless from the comfort of your home, you can opt for one based on your needs and preferences.