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Pros And Cons Of Having Multiple Savings Accounts

Multiple savings accounts provide higher flexibility, better cash management, more offers and even enables you to save money through lower fee and charges

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Most of the urban population today possess more than one savings account. While some utilize the banks accounts effectively, others fail to do so. Having multiple savings accounts come with their own sets of advantages and disadvantages. This analysis should help you decide if you need more than one savings account.

What works in favor of multiple savings accounts?

Higher ATM withdrawal limit- As all savings accounts come with a daily ATM withdrawal limit, holding multiple savings accounts would increase your total daily withdrawal limit. For example, assume that you have just one savings account with a daily ATM withdrawal limit up to Rs. 50,000. Now, if you open another savings account with a daily ATM withdrawal limit of Rs 50,000, you will be able to withdraw up to Rs 1 lakh from ATMs in a day. All that you would need to do is to either hold the withdrawable amount in your second account or transfer to it through instant transfer mechanisms like UPI, IMPS, NEFT and RTGS.  Thus, higher ATM withdrawal limit would help in managing your cash flows better, especially during financial emergencies and bank holidays.

More free ATM transactions: Most savings accounts come with upper limits on the number of free ATM withdrawals per month, beyond which ATM transactions become chargeable. Usually, banks charge Rs 20 per financial transaction and Rs 8.5 per non-financial transaction beyond the free limit. With multiple savings accounts, the number of free ATM transactions available to you would also increase. So, in case when you need to frequently withdraw money from ATMs, multiple savings account will help you save money by avoiding these ATM charges.

Higher number of branch transactions- Most banks have set upper caps on free cash deposits, cash withdrawals, cheque clearing and other branch transactions made through their savings accounts. Beyond these limits, these transactions become chargeable. Holding multiple savings accounts will allow you to distribute those transactions across those accounts to contain them within the free limit. This would ultimately reduce your overall banking costs.

Provide alternatives during disruptions- Bank operations can be affected by unavoidable factors like strikes by employee unions, technical glitches, local disturbances, etc. Having multiple savings will at least allow you to make a transaction in case you are unable to do so through your primary account.

Higher cover of deposit insurance- Deposit insurance was introduced in India in 1962 to protect the interest of bank depositors in the event of the failure or merger of a bank. Under the scheme, Deposit Insurance and Credit Guarantee Corporation (DICGC) insures every depositor of a covered bank for up to Rs 1 lakh. The upper limit will apply to all types retail bank deposits including savings, current, fixed and recurring deposits held by you with a particular bank. If you hold funds in multiple banks, there would be separate insurance cover of Rs 1 lakh for each of them. As deposits of over and above Rs 1 lakh is not covered by this scheme, it is wiser to distribute the risk among multiple bank accounts and avail higher insurance cover for your deposits.

Offers on debit cards- Most debit cards offered along with savings account come with attractive offers, such as cash back, discounts, reward points, etc. Having multiple savings accounts will allow you to make online and point of sale (POS) transactions on the basis of the offers available on your debit cards.

What works against them?

Lower returns-Most savings accounts require you to maintain a monthly average balance (MAB), failing which attracts steep non-maintenance fee. Holding multiple savings accounts will require you set aside higher amount for meeting MAB requirements. The interest rate for savings accounts are in the range of 3.5 to 7% p.a., which is much lower than debt mutual funds.

Hassle of tracking multiple accounts- Holding multiple savings accounts will require you to keep track of multiple debit card PINS, net banking user names and passwords, cheque books, minimum monthly average balances etc. This may cause you trouble, especially if you aren’t financially disciplined enough.

Summing up, it’s evident that the advantages of having multiple savings accounts outweighs the disadvantages. Multiple savings accounts provide higher flexibility, better cash management, more offers and even enables you to save money through lower fee and charges. However, the decision to have multiple savings accounts should depend on the frequency of your transactions. If your financial transactions are limited to one or two a week, a single savings account should suffice. More frequent users, should have more. But do ensure you close the bank accounts that you do not use or those with poor features. Look for savings accounts that suit your needs and offer a high rate of interest.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Sahil Arora

The author is VP & Head of Payments Products,

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