However, she hasn’t been able to save or invest much so far. She believes that earning a good interest on her bank balance can be a good starting point. Has Ayeena understood the role of the savings bank account? How should she go about evaluating and using the savings bank account efficiently?
The savings bank account is the basic tool that Ayeena will use to manage her finances throughout her career. However, she must not consider it as an investment product based on its returns. She can’t have a lot of money lying idle in her savings bank account and must chalk out a savings and investment plan. If she manages to do that, the high interest rate on the balances in the account should not really be a deciding factor since her money will earn much higher returns wherever invested.
Moreover, using her salary account to conduct her investment activities may cause practical operational difficulties in the event of her changing her current job. If it ceases to be a salary account, many of the facilities offered by the bank are likely to cease and make the account unsuitable. In such a situation, the decision to close the account or move to an alternate account may prove difficult if she has already issued cheques or instructions for her investments from this account. Hence, it is best for Ayeena to have an additional savings account independent of her employment which she can select and operate to her convenience. She can route all her investments through this account by transferring the portion of her income earmarked for investments into the new savings account as soon as her salary is credited. This will bring discipline to her spending, saving and investment activities.
Ayeena must evaluate the facilities linked to the account offered by the banks before making a decision. Selecting a bank that has a wide geographical presence will mean that she will have access to her account and services irrespective of her location. She must look for banks that provide her with facilities such as internet banking, at-par cheque facility, electronic fund transfer services and low balance maintenance requirements. These are important for her in order to conduct the investment activities without the constraints of location.
On the other hand, since this is an account for her to conduct the investments and not her expenses, a wide ATM coverage or other facilities linked to the ATM or debit card may not be very relevant. Ayeena should list her current and likely future needs and look for an account that meets them most efficiently.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
