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Nov 14

Know Why Maintaining Multiple Accounts is Not Beneficial

The average middle class has the same saving story. We want to save money and keep it safe for future use. Saving money is not a bad choice and spreading your savings into many bank accounts is definitely menacing. Many people maintain more than one bank account for various purposes which can prove to be of loss.

Sometimes, one account is for bigger savings, one account functions as the salary account and sometimes another one account for the joint savings with the spouse. It might sound very exciting that one person has many bank accounts and which might also mean more savings. But this notion needs a thoughtful reflection.

People open multiple accounts with various banks to avail some of the best services available like buying a house, child?s education, market investments, and so on. People open bank accounts and then forget about them. According to the World Bank?s Findex report, almost half the population of India holding one or more bank account had a bank account that remained inactive for more than a year.?

    One fact to keep in mind is that one has to maintain a certain minimum balance amount in each account.  Non-maintenance of the minimum balance also attracts a penalty. It simply means that if you are having 4-5 saving accounts then Rs.25,000-50,000 of your savings will be locked in different bank accounts as the minimum balance.

    Banks issue debit cards with savings accounts and that service is availed at an expense. No matter if you use one particular account or not, you still have to pay the service charges. And in some cases if your salary account is not in use for more than 3 months or so, then the bank turns it into a normal savings account from a zero balance account. It requires you to maintain a minimum balance in that account as well. 

    The rate of interest for the savings account remains at 3.5-4.0% per annum for most Banks. If this money is put in the Fixed Deposit then the same money fetches a higher rate of returns. Banks consider a savings account as dormant if the account is inactive for 2-3 years. In such scenario, you have to run to the bank for using that account. Multiple accounts haunt you when you submit the tax returns or when your brain fails to mug up all the cards and access pins.

    If you intend to earn higher interest from small private Banks (like Small Finance Bank) while remaining within Rs. 1 Lac deposit insurance limit of Deposit Insurance and Credit Guarantee Corporation, you may keep Fixed Deposits spread across few Banks. However, it is better to maintain less number of Savings accounts.

    Key Disadvantages of Multiple Bank Accounts

    To sum up, it is not advisable to keep multiple saving accounts with different Banks because of the following reasons:

    • A good part of your savings would be locked as minimum balance requirement.
    • Not maintaining the minimum balance may cause you to suffer penalty
    • Loss of interest rate on Savings (Savings carry lower rate of interest compared to Term Deposits)
    • Having multiple accounts may create confusion in making transactions
    • Filling tax return turns out to be a tedious task

    The Advice

    Financial experts suggest that the number of saving accounts should be reduced to one or two or max three. A person should have one salary account and one main savings account. The salary account may be the temporary account; changing every time you change a job. If a person needs to really segregate the savings then the person may even use three savings accounts. One account could be the main savings account, one joint account with family or spouse and the last one may be the salary account. Always put standing instruction (wherever possible) for auto-sweep into Term Deposit whenever the account balance crosses a threshold.

    It is always advised to restrict the number of accounts to;

    • Put money at better use
    • Avoid the confusion of maintaining minimum money and pin records
    • Avoid penalty

    Get in Touch with an Expert