Savings Account

What is a ‘Savings Account’?

A savings account is a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Depending on the specific type of savings account, the account holder may not be able to write checks from the account (without incurring extra fees or expenses) and the account is likely to have a limited number of free transfers/transactions. Savings account funds are considered one of the most liquid investments outside of demand accounts and cash. In contrast to savings accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the account. Savings accounts are generally for money that you don’t intend to use for daily expenses. To open a savings account, simply go down to your local bank with proper identification and ask to open an account.

Open Saving Account

1. Approach any Bank of choice & meet its Bank Officer – Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account.
2. Fill up Bank Account Opening Form – Proposal Form – The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.
3. Give References for Opening your Bank Account – The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank.
4. Submit Bank Account Opening Form and Documents – The duly filled in proposal form must be submitted to the bank along with necessary documents.
5. Officer will verify your Bank Account Opening Form – The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.
6. Deposit initial amount in newly opened Bank Account – After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account.

Advantage of Saving Account

Their main advantages are liquidity and superior rates compared to checking accounts. Most modern savings accounts offer access to funds through visits to a local branch, over the internet and through automated teller machines.

Traps of Savings Account

A savings account is one of the most common financial tools for individuals to keep their money safe while earning interest. However, there are several traps associated with savings accounts that can reduce the benefits or result in unnecessary costs. Here are some of the common traps to watch out for:

1. Low Interest Rates:

• Trap: Traditional savings accounts often offer very low interest rates, which may not keep up with inflation. Over time, this means your money might lose purchasing power even though it’s “safe.”
• Solution: Compare interest rates across various banks and financial institutions. You could consider alternatives like fixed deposits, high-yield savings accounts, or other investment options that offer better returns over time.

2. Minimum Balance Requirement:

• Trap: Many savings accounts require you to maintain a minimum balance. Failing to do so can result in penalties or reduced interest rates. Some banks charge a hefty fee if your balance falls below this threshold.
• Solution: Choose accounts with no minimum balance requirements, or ensure you consistently maintain the required balance to avoid fees. Some banks offer basic savings accounts that do not have this restriction.

3. Fees for Transactions:

• Trap: Some savings accounts come with hidden charges for basic services like ATM withdrawals, online transfers, or cheque book issuance. These charges can add up, especially if you perform multiple transactions per month.
• Solution: Look for accounts that offer free ATM withdrawals, unlimited online transfers, or no charges for cheque book issuance. Be mindful of the terms and conditions to avoid surprise fees.

4. Overdraft Charges:

• Trap: In some cases, if you overdraft your savings account (i.e., spend more money than you have), the bank might charge overdraft fees, which can be quite steep.
• Solution: Track your spending and ensure you never overdraw. Some banks also offer overdraft protection, but it often comes with an associated fee or interest. Make sure to read the terms carefully before opting for such services.

5. ATM Network Restrictions:

• Trap: While many banks offer ATM cards, some banks have limited access to their ATM network. If you withdraw cash from ATMs outside the bank’s network, you may incur significant charges.
• Solution: Choose banks that have a large ATM network or partner with other banks to offer fee-free ATM access. Some banks also offer fee waivers if you maintain a certain balance or perform a specified number of transactions.

6. Account Dormancy Charges:

• Trap: If your savings account is inactive for a long period (such as not making a deposit or withdrawal for several months), it may become dormant. Some banks charge a fee for dormant accounts, or in the worst case, the account may be closed.
• Solution: Keep your account active by making small deposits or withdrawals, even if it’s just once or twice a year, to avoid dormancy charges.

7. Low/No Return on Deposits:

• Trap: In most savings accounts, the interest earned may be very low, and may not even keep pace with inflation. As a result, your money essentially remains static, and its real value may decrease over time.
• Solution: Instead of parking all your money in a low-interest savings account, consider diversifying your savings into higher-return instruments like fixed deposits, mutual funds, or bonds for better growth.

8. Limited Features for High-Balance Accounts:

• Trap: Some banks offer better features (such as higher interest rates, fewer charges, or added perks) only for accounts that maintain a high minimum balance. If your savings account balance falls below that amount, you may miss out on these benefits.
• Solution: If you’re eligible for a high-balance account, ensure you maintain the required balance. Otherwise, choose a basic savings account with no maintenance charges and reasonable features.

9. Non-Interest Bearing Accounts:

• Trap: Some savings accounts may not earn any interest at all or offer such a low rate that it becomes negligible. This can be the case for certain basic or zero-balance accounts.
• Solution: When choosing a savings account, ensure that it offers a reasonable interest rate and that the rate is compounded regularly. Some banks offer higher interest rates on accounts linked to long-term deposits.

10. Interest Rate Fluctuations:

• Trap: Many banks have variable interest rates on savings accounts, which can change depending on the market. This means the rate of interest you are earning could drop unexpectedly, reducing your savings growth.
• Solution: Look for banks that provide fixed-rate savings accounts or have a history of offering consistent interest rates. Alternatively, you can look for other options like fixed deposits for more predictable returns.

11. Limited Withdrawal Access:

• Trap: Some savings accounts, particularly those offering higher interest rates, may have restrictions on the number of withdrawals you can make each month. Exceeding this limit can result in penalties or loss of interest.
• Solution: Be aware of the withdrawal limits set by your bank. If you need frequent access to your funds, choose an account that offers unlimited withdrawals or opt for a liquid account with no restrictions.

12. Lack of Mobile or Internet Banking Features:

• Trap: Some banks may not offer robust online banking or mobile banking features for savings accounts, which can be inconvenient for tech-savvy individuals who prefer managing their finances digitally.
• Solution: Choose a bank that offers user-friendly mobile apps, online banking facilities, and 24/7 account access so you can easily monitor and manage your savings account.

13. Missed Notifications of Changes:

• Trap: Banks sometimes make changes to their fee structures, interest rates, or account terms without proper notification. You may find yourself facing unexpected charges or penalties because you weren’t informed of these changes.
• Solution: Stay informed by regularly checking bank statements or official bank communications. Sign up for SMS alerts or email notifications so you’re aware of any changes.

14. Restrictions on Online Transactions:

• Trap: Some savings accounts might have restrictions on online transactions, such as a cap on the number of payments you can make or a limit on the amount you can transfer.
• Solution: Look for savings accounts that offer unlimited online transactions or sufficient transaction limits if you plan on making frequent online payments or transferring funds regularly.

15. Difficulty in Switching Banks:

• Trap: If you want to switch from one savings account to another, you might encounter bureaucratic hurdles, paperwork, or long wait times to close your account or transfer your balance.
• Solution: If you anticipate the need to switch banks, ensure the process is easy by checking the bank’s account closure policies. Look for banks with online account transfer options that make switching easier.

Conclusion:

While savings accounts are an essential and safe way to store money, there are several traps to be aware of that can reduce their effectiveness. Hidden fees, low interest rates, account maintenance charges, and limited features can all impact the value of your savings. To avoid these pitfalls, compare options across banks, choose an account with favorable terms, and keep track of your account activities regularly. If your financial goals require better returns or more flexibility, consider supplementing your savings account with other financial products like fixed deposits, mutual funds, or high-interest savings options.

Key Terms:

• Bank savings account
,
• Best savings account rates
,
• Easy access savings
,
• Fixed deposit vs savings
,
• High-interest savings
,
• High-yield savings account
,
• Interest-bearing account
,
• Joint savings account
,
• Monthly savings
,
• Online savings account
,
• Personal savings account
,
• Saving account
,
• Savings account interest
,
• Traditional savings account
,
• Zero balance savings account

Disclaimer: The information provided here has been compiled from various sources to the best of our knowledge. While every effort has been made to ensure the accuracy of the details, there may be occasional errors or omissions. If you find any discrepancies or incorrect information, kindly inform us so we can make the necessary corrections. Thank you for your understanding and cooperation.