The changing face of savings bank account

The savings bank account that served as your piggy bank for years is seeing structural changes.

ICICI Bank and HDFC Bank have started scrutinising savings accounts on a monthly basis and account holders have been required to maintain a specific amount as monthly average balance.

Further, the cost of a savings account has also gone up with several new charges.

We throw light on changes in savings bank accounts and how to manage your savings.

Minimum balance changes

Most public and private sector banks have a minimum balance requirement in their savings accounts. Private sector banks such as YES Bank, Kotak Mahindra Bank, Axis Bank are under the ‘Average Quarterly Balance' (AQB) model.

Under the AQB requirement, the bank scrutinises the account every three months. To check if you have adhered to the minimum balance norm, the banker will average the daily closing balance of the account during the 3-month period on the last day of the quarter. This means, you have the leeway to maintain zero balance for some days or even extended periods of say a month, as long as you could ensure the account has the average balance as prescribed by the banker.

Incidentally, Axis Bank announced an increase in AQB in some of its savings bank account products recently. The bank's basic saving account product where the AQB was Rs 5,000 now has a higher average balance requirement of Rs 10,000.

Again, not all banks are under the AQB model. ICICI Bank and HDFC Bank have moved to a monthly average balance (MAB) model recently. This is to ensure that the accountholder keeps more cash in his account on a monthly basis. The monthly average balance required at ICICI Bank and HDFC Bank in urban areas is Rs 10,000. By adding the end-of-day balances of the month, one should arrive at a figure that is not less than Rs 3 lakh.

Higher charges

Post the deregulation of savings bank interest rates last year, some banks increased the interest offered on these accounts. To compensate for this increase in cost of funds, banks began levying additional charges. Issue of duplicate copies of bank documents, mobile payment service began to be charged. More recently, charges on non-maintenance of minimum balance in the account have been revised higher by some. ICICI Bank, where initially the penalty for non-maintenance of minimum balance was Rs 750 per quarter, now, charges a penalty of Rs 350 per month (for balance below Rs 5,000 in urban locations). Axis Bank has revised cash transaction limits at home branches and is soon likely to charge for transactions (both cash deposit & withdrawal) above a limit.

Managing savings

Savings bank accounts have costs attached to them. So, before taking on one, do see if it fits your requirements and whether you can, without trouble, maintain the minimum balance required by the bank. For example, you can consider State Bank of India which offers a ‘zero' balance account or some other PSU bank where the minimum balance requirement is less. SBI has also done away with penalising customers for non-maintenance of minimum balance.

Besides, if you don't require all the money, choosing a bank with higher minimum balance requirements or having fat balances in savings account is not prudent. This money, if invested elsewhere can earn a higher interest. A one-year bank FD, for instance, earns interest around 8-8.5 per cent yearly.

Also avoid over the counter transactions at banks and choose National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS) route if you want to move large sums of cash. Most banks offer this service. In NEFT and RTGS the beneficiary gets the credit on the same day (in RTGS it happens instantly) of transfer and charges are also minimal. A NEFT transaction for amount less than Rs 1 lakh is charged just around Rs 5.

Scrutinise all your savings accounts and close the unproductive ones. This will help you cut costs and invest wisely.

craji@thehindu.co.in

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