Saving Grace

Sowmya Kamath        Print Edition: April 2012

For most of us, the first association with a bank is through a savings account. There was a time not long ago when you needed an existing account holder's endorsement to open the account, whose only aim was keeping liquid money.

The account, like the banking system, has evolved a lot since.

Know-your-customer norms have replaced the introduction system, making account-opening much easier. Earlier, there was just one type of savings account where you could deposit money and earn some interest.

Now, you have a lot of options. Similarly, after the Reserve Bank of India, or RBI, deregulated the interest rate on savings accounts, some banks have started offering 5-6% per year on these deposits. The account can get you facilities such as an insurance cover.

VARIED HUES
Do you wonder why banks offer so many variants of savings account? Why can't they offer all the facilities in a single account? The answer lies in the minimum balance you have to maintain. Savings bank accounts are cost-intensive products.

To offer special value-added services, banks have to make heavy investments in customer care such as in setting up and maintaining call centres, management of ATMs and back-office operations.

"When banks offer added value to customers, they have to make sure they can sustain it," says Sonu Bhasin, group president, Yes Bank.

You can choose the account depending upon the facilities you want and the minimum average quarterly balance, or AQB, you can maintain. The minimum AQB is generally higher in urban areas than in semi-urban and rural areas. Also, most public sector banks demand lower AQB than private sector banks.

A simple savings account will get you a passbook, a debit-cum-ATM card for unlimited use at ATMs of the bank in India and for limited free transactions at ATMs of other banks, a cheque book, internet banking, monthly and quarterly statements, and free SMS/email transaction alerts.

These facilities are also offered for salary accounts, which have an added advantage of no minimum AQB.

For non-maintenance of minimum AQB, banks levy a charge which varies from Rs 30-500 per quarter in public sector banks to Rs 500-750 in private sector banks. Other charges are for annual maintenance, cheque book, duplicate passbook, standing instruction, demand draft, traveller's cheque and PIN generation for debit-cum-ATM cards.

These facilities and charges are for plain vanilla savings accounts which are not no-frill and salary accounts.

FREEDOM AT LAST
The RBI deregulated savings bank interest rates in October 2011 on condition that banks will offer a uniform rate for deposits up to Rs 1 lakh. They can offer different rates for deposits above Rs 1 lakh.

However, few banks increased interest rates on savings accounts after this. Those who did were mostly private sector banks.

"I don't think savings account is viewed as an investment product. Why will somebody keep a large balance in his savings account? Plus, nobody will sever his relationship with a bank for a percent extra interest," says a senior official of a public sector bank, on condition of anonymity.

Some banks are still analysing the impact of the move.

"With deregulation of interest rates, I don't know how things will shape up. But as of now, despite the deregulation, all banks have large savings balances and have preferred to not increase the rate," says GB Songaonkar, general manager, Central Bank of India. Songaonkar says there is not much evidence that customers are shifting to banks offering more interest on savings accounts.

"If you have a lot of money in your account, you can go for a fixed deposit or avail of the sweep facility," says a senior official of a public sector bank who is not authorised to speak to the media.

However, banks offering higher rates differ. "The sweep facility involves too many transactions and complications regarding what rate will be charged for funds transferred between accounts in short periods. I believe in making things simple. That's why we are offering a higher rate," says Bhasin of Yes Bank.

CLEAN SWEEP
Suppose you have opted for a sweep facility with a threshold of Rs 20,000 and your account balance is Rs 35,000. So, Rs 15,000 (Rs 35,000-Rs 20,000) will be transferred to a fixed deposit in denominations of say Rs 1,000.

The rate applicable to funds that are sweeped in will depend on the number of days for which you keep the deposit.

Banks generally don't offer the term deposit rate for a deposit that is liquidated in less than seven days. So, if you withdraw Rs 25,000 within seven days of the money being transferred to the term deposit, you may earn just the savings bank rate.



PROMOTIONAL OFFERS
Some banks offer discounts at eating joints/shops associated with them. They also offer a customised account. So, if you keep a large balance in your savings account, your bank will offer to upgrade the account or add some benefits.

Locker discount
Depending upon the minimum average quarterly balance and the account you choose, some banks offer a 15-30 per cent discount on locker fee. Normally, this is for accounts where the minimum average quarterly balance is Rs 50,000 and above.

Insurance
Some offer over-the-counter insurance products like accident cover or life insurance with accident cover. Some banks also insure debit cards in case they are stolen or misused. In such a case, there is a purchase protection clause too. This ensures that you are reimbursed up to a certain limit in case your stolen or misplaced debit card is used for shopping.

Discount on gold products
A number of banks offer 2-5 per cent discounts on gold coins sold by them, especially to privileged customers who maintain large balances in their accounts

International debit cards
International debit cards, which can be used for shopping and withdrawing cash from ATMs abroad, are offered free of cost.

Cash withdrawal
Many banks offer privileged customers any number of cash withdrawals from other banks' ATMs. In addition, they increase the maximum amount one can withdraw at a time from ATMs.

Sweep facility
In this, funds beyond a limit are transferred to a fixed deposit. When you need the money, the bank transfers the amount requested to the savings account. The fixed deposit earns a rate that is applicable for the period it is held. You can also withdraw the term deposit money from ATMs without first transferring it to the savings account.

Price gain
Banks also offer benefits such as waiver of annual fee for demat accounts and lower charges for demat and trading accounts.

For the family
Some banks extend special facilities to family members who have an account with them. One such facility is clubbing of all family members' deposits. Some offer education insurance with accounts for children.

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