We don’t know what situation will come at what time so, it is good to save money. But saving a lot is also too dangerous when we consider some of the facts. Why bank employees remind you about the savings in your account? Have you ever excited to get an answer to this? And many times it is said Why Shouldn’t We Save A Huge Amount In Savings Bank? !! Don’t worry in this article you will get an answer to this question. So don’t wait and let’s dig our research!
Why Shouldn’t We Save A Huge Amount In Savings Bank?
Following are the reasons for why would we not keep too much money in the saving bank account
Generally, every person wishes to save a huge amount for his/her future expenses and also for medical expenses. So make sure that you save money for that could cover your expenses for over 6 or 7 months. Saving more than this limit will become a problem. To say more precisely, you may end up with some loss. There are two main reasons why you end-up with loss. One is the psychological behaviour of a human while other is because of less interest rate claim on your savings. Let’s check them in detail.
1. Psychological Behaviour:
You may think that this reason is very silly, but this is the actual reason why most of the people end up with less money. For example, you will get your salary every first week of the month, but why you will end-up with less amount at the end of the month? There are many reasons why you get into that situation. Let us discuss them;
After receiving your money you cover all your bills like electricity bill, phone bill, gas bill, etc.
You have to pay your monthly EMIs (if any). As our today’s world consists of multiple options and lot more entertainments, with the remaining money brain starts to manipulate us to upgrade the things around us, to buy accessories in the online portal with discounts, to crave for our favourite food, Opting to give good and fancier gifts for marriage functions becomes our choice and finally vacation trips if possible.
So, these all are the reasons why you end up with less money at the end of the month. This reason not only works for monthly salaries but also for a large amount of savings. If you save more money than required then this behaviour hooks up and at last this psychological behaviour wins the battle.
But this reason is only for some people who can’t resist themselves from buying. But the other reason is a very practical one and it is better to not neglect the second reason.
2. Interest Rates On Savings Account:
The interest rate on a savings account is fixed by the Ministry of Finance, the minimum interest rate is 3.5% per annum and it’s a part of RBI circular.
The upper limit of the interest rate is arbitrarily decided by each bank.
State Bank of India (SBI) Account establishes an average interest rate of 3.5% for savings accounts with a minimum balance of 1 lakh and an average rate of 2.75% for all accounts with a balance of less than 1 lakh.
Do you think saving in Fixed Deposits gives you the good profit you can get?
The answer is No, because if you have interested the same amount in mutual funds or fixed deposits then you might have ended with more profit. It is true that business fluctuates every minute but know that things take time and start to invest at least when you have saved the necessary amount for 6 to 7 months. Over a particular period, you will get good results when compared to results from a savings account. To understand this better let us take an example.
Let Us See An Example:
A person named ‘X’ is depositing a principal amount of 50,00,000 in his account and after 4 years his interest amount is 7,00,000(with a 3.4% interest rate per annum). Do you think he has got a good profit?
The answer is “No”, with an inflation rate of 8% he has got a negative profit. If he had invested in mutual funds or any other investment options, he would earn a profit rate of approximately 15,00,000(which is double of the obtained interest amount). When the waiting period is more than 30 years then you can see a very good difference in between saving the money and investing the money.
Why there is a lot of difference between saving and investing in stocks? What factors change the interest rate in a savings account? Let’s check them.
Factor Reducing The Saving Account Interest Rates:
Inflation refers to the rate at which the price level of goods and services increases over a while. The period for inflation depends on the surplus or demand of the goods in the market. When a product has less consumption than the previous time, the price of that product decreases, and if the product has more demand the price rises.
The inflation is with an average rate of 7-8% while the interest from a savings account is 3.5% on average. This shows that you will get negative returns. Also as many think that it is better to save money instead of investing them in stocks, banks provide fewer interest rates on your savings. So that bank will never go in debts.
So, we have seen what interest rate we can claim while saving in a savings account, and do you think it is better to save rather than investing? No, right! It’s okay if you have saved the minimum amount that covers your expenses for 6 to 7 months as I have already said. But it’s not quite suggestable to save more in the account. So, let’s check for an alternate solution.
A Solution To Balance Funds:
You can save the excess money apart from your monthly expenses in a short-term mutual fund (that has around 8% interest) and has better taxation than FD (Fixed Deposit).
Invest your money in stocks which could roughly give an annual interest of 7%, but note this long-term investment requires no manual intervention for a specified period so save your emergency fund in a savings bank account and invest only the excess amount in stocks.
The period between a savings account and FD (or other long-term investment options) is wide and so is the interest rate.
Make sure that you use liquid cash instead of too many online transactions.
Maintain savings which cover expenses up to 7 months.
Make the wise decision of investing a part of your income in any long-term investment option to never miss the profit.
Rule Of Pandemic Covid-19 Over 2020:
Yes, this pandemic situation has created poverty, unemployment, destruction of lives, loss of wealth, etc., people are looking for various means to the sail through this tough time.
According to a survey, 32.2% people have invested in personal savings account between February to June 2020, which is 16% more than the previous year, but this might not be a very good idea to yield a profit, because owing to the inflation even banking sectors are struggling to give high-interest rate accounts.
The price level of bitcoins, golds shows this current inflation is considered to be the highest in the past 9 years (since 2011).
What Is The Best Option To Invest Money Now?
i. Try investing a part in stocks, mutual funds to earn more profit.
ii. Try investing a part in a savings account for secure and steady income.
But apart from loss while saving huge money in the bank what benefits can we avail from them? Let’s check them.
Benefits Of Savings Account:
1. Security Blanket:
A Savings Account is found to be a safe approach for funds. The funds in the account remain in there until it’s withdrawn, often this is regarded as the reason why the savings account has a low-interest rate.
The amount present in the account is considered to be liquid, the term is used to refer the liberty of the account holders to withdraw an amount up to a minimum required balance anytime anywhere.
2. Make Hay While The Sun Shines:
Being a savings account holder allows you to enjoy discounts, reward points on purchase using the ATM card of either credit or debit card. Medical insurance, foreign travel insurance, and other insurances for opening the account are provided. Also, passbooks, net banking, and cheque book facility are a bonus to the account holders.
3. Close Fisted Or Generous:
The account is suitable for close-fisted people who choose to save money instead of spending and also generous people who wish to spend more money. There are no restrictions on cheques deposited or issued or any other payments made.
Difference Between Savings Account And Current Account:
Basically, both are similar to each other.
In a savings account, you will save the money to fund you in later times or during emergency conditions, whereas in a current/ checking account the funds which you save are primarily used for daily expenses or it is preferred by people who require the frequent withdrawal of funds.
A savings account does not encourage more than 6 withdrawals a month, but the checking account does encourage.
The Savings account has more rate of interest (minimum of 3.5%) then checking account (minimum of 0.25%).
The main reason for us to discuss between a savings and a current account is that most often people use a checking account as savings account just to facilitate their easy access and frequent withdrawals. But there is a high risk, if a bank collapses, it promises its customers to settle back their amount fully but in the worst conditions at least a protected amount specified by the bank is settled to the savings account holders but in a current account you cannot specify or expect so.
Tip: Never Give Culprit An Opportunity!
Our very small flaw/ignorance could make us repent for years, yes, heaping or saving all the hard-earned money in a single place could provide high chances for victimizers to easily loot the money.
Getting track of an individual’s account details is not as tough as Rocket sciences, so distributing our funds across different trustworthy banking and financial sectors could give a ray of hope and a good backup even if situations turn out to be bad.
Frequently Asked Questions (FAQs):
1. What is the maximum amount to save in a savings account?
There is no maximum amount restriction but when you deposit or withdraw an amount more than 10 lakhs, you should fill a form to process the request.
2. What is the tax imposed on a Savings account?
Under “Income from Sources”, a savings account is supposed with a minimum of 4% tax and increase in the tax rate is added on bases of the individual’s income sources, and balance amount in the account.
3. What is the tax imposed on mutual funds?
If the return from the mutual fund is more than 1 lakh per annum then it’s subjectable to 10% of the returns as tax. Else no tax is imposed.
4. What does Bitcoin mean?
Bitcoin is a computer file it is generally stored in a digital wallet app on either smartphone or PC.
People can share bitcoins to others.
The transactions made are recorded in the block chain, it’s a public list. It prevents the misuse of bitcoins.
It is valuable as goods and services are provided in exchange for bitcoins.
Thus, I conclude by saying instead of saving a hefty amount in savings account invest funds in mutual funds or long-term investment options which could give considerable profit, and provide an opportunity to become a big buck.