Savings Accounts is a basic financial structure offered by banks. You can open savings account online or physically go to the bank and apply for it. It is easy to open and everyone can have a single or multiple savings account as per need. When we think of depositing our hard-earned money for short-term requirements, the best choice that comes to our mind is a Savings Bank Account. The function of a Savings Account is to save money, besides earning appropriate interests that can help enhance the deposited amount. You need to know a few things about a Savings Account and how much money it can make.
How much money should you keep in a savings account?
A savings account is not meant for investing, as the name itself suggests. Rather, it can be used to keep a certain amount for you to use on your monthly expenditures or as emergency funds. With minimal interest rates, it is inadvisable to keep your money in a Savings Account for a prolonged time period. Most banks provide an interest rate ranging from 3.5%-4%, while emerging cooperative banks may offer savings account interest rate up to 7%. But it mostly depends upon the bank you are referring to, and the amount you wish to deposit.
As for how much you wish to deposit depends upon your income and expenditures. Money amounting to about 3-4 months of your salary might just be right for most people. But it’s a mere guess and the amount may differ from person to person. Some other factors may affect this decision such as the taxation of interests counted in a savings account.
How much tax do you need to pay for the interests earned?
When you earn interest, it becomes a source of income. Therefore, it is imperative to pay taxes for these interests. However, for Savings Account the amount of tax to be paid has some guidelines issued by the Income Tax Department. Under section 80TTA, if you earn more than Rs.10,000 per financial year from interests, a certain amount will be deducted as tax. But less than 10,000 rupees means you are exempted to pay taxes for your savings account interests.
You must note that this scheme is available only on savings accounts and not on fixed deposits. Also, this is applied collectively for all the savings accounts owned by a person and not used again and again for different accounts. Thus, to make sure your interests are tax-free, you must not keep huge amounts of money in your Savings Account. Tax saving may not be your objective but efficient tax savings strategies can help you accumulate a higher amount of savings.
What are the other available alternatives of a savings account?
Low-risk debt funds can be a potential alternative to savings accounts since they offer higher returns and facilitate liquidity. They have a short term investment scope and are a type of open-ended mutual fund scheme. Although they offer higher returns than savings accounts, it is not one hundred per cent guaranteed. In case you are willing to take little risks to get higher returns then you can stick with liquid funds. But those unwilling to take such risks can stick to a Savings account and coordinate the amount of money to be kept to avail the maximum benefits.
How to use a Savings Account efficiently to get the maximum benefits?
In case you want to open savings account online or offline, conduct thorough research to understand the pros and cons before depositing your money in it. Also, decide how much money is feasible to be kept for availing the maximum advantage. A savings account allows you to deposit money for a short term and offers minimal interests and guaranteed returns. It also deducts tax earned from interests amounting to Rs. 10,000 in a financial year permitting you to keep a limited amount in a savings account. You can use Savings accounts as emergency funds to get through challenging situations. This would require you not to think about higher returns and just tackle one situation at a time.
Therefore, a Savings Account is a default account that is used by most people to deposit their money, withdraw funds, earn decent interests and use it in case of emergencies. How much money should be kept in it depends entirely upon the individual and their expense patterns. To get higher returns, one can also look through low-risk liquid funds as an alternative.