Close up of Indian 2000 rupee notes
Wise men say, money often works for people who work at it. As we juggle between our various financial commitments and priorities, there are a number of factors that one has to keep in mind when building an investment portfolio, your current financial situation, liquidity, short, medium and long-term financial goals, your risk profile, tax considerations, etc. We are always on the lookout for attractive investment opportunities to invest our hard-earned money.
In this quest to build ourselves a surplus for the future, one must not overlook the importance of liquidity. While we plan for the future, it is just as essential to ensure that we have immediate access to a part of our capital in case of any unforeseen situation.
On an average a customer keeps 2-4 months of fixed expenses as contingency kitty. Over the years, the humble savings bank account has been among the most trusted options to maintain this kitty liquidity. A savings bank account scores over liquid funds or term deposits as customers have the flexibility to deposit, instant access to funds at any time and simplicity of taxation.
In general, people tend to treat the money in their savings bank accounts as idle money. Money that does not earn them any return. However, in the present times, this simple liquidity instrument is gaining popularity among savers, who not only seek the comfort of accessing their money at will but also seek superior returns. If you choose wisely, your savings account can also earn you more money.
It is true that many private and public sector banks have recently reduced interest rates on savings accounts to 3.5%. However, there are banks which continue to offer higher interest rates on savings account balances up to 6% per annum risk-free return on your savings account balance. On an daily balance of more than Rs 1,00,000, one can earn over 1.7 times the return with zero risk, by simply choosing a higher paying savings account at the right bank!
This is especially beneficial in a falling interest rate environment - interest rates on the one-year term deposit have fallen to 6.5% in 2017 from 9.1% in 2014, while those on the three-year term deposit have reduced from 8.75% to 6.25% during the same period.
Reaping the benefits of up to 6% per annum on savings account balances at a time when interest rates are on a downward trajectory is an excellent opportunity to let your money work that extra harder for you. Additionally, to get the 6% advantage, a customer doesn't have to visit a branch or complete complex documentation. A savings bank account can now be opened in under 5-minutes from your smartphone or on the web.
From a tax perspective too, interest income earned from a savings account up to Rs 10,000 is exempted from tax under section 80TTA. While investment options like liquid funds have a complex taxation structure based on the tax slab of the individual and time frame for which the funds are held. In a nutshell, a savings account can be an important tool in your portfolio when used in a prudent manner. Choosing the right savings account, can help you make your money work and earn for you.
(The writer is Senior Executive Vice President & Head, Retail Liabilities, Investment & Payment Products, Kotak Mahindra Bank)