Banking in India

The Banking system in our Country has evolved (still evolving as we continue to grow) over a period of time. Previously, the RBI (Reserve Bank of India) made ‘letter of introduction from existing account holders’ mandatory for opening bank accounts. This was in addition to the KYC (Know Your Customer) documents. But now, anyone can open a bank account by just submitting the required KYC documents.

Most of the working people tend to have more than one bank account. People invariably open multiple bank accounts upon changing their employer or for a specific purpose (buying a property, for vacation etc.,). Banks require customers to maintain minimum balance in their account. Else, the bank imposes penalty for non-maintenance of minimum balance.

Types of Accounts

Banks usually do not impose minimum balance requirements for salary accounts. Banks allow them to maintain zero balance (without any penalty). However, banks may convert a salary account into a normal savings account if there is no salary credit for three consecutive months. In turn, this forces a customer to maintain the minimum required balance.

The balance in savings accounts typically earns interest in the range 2.5-3.5% (some banks may offer higher interest rates in order to attract new customers). Typically, the interest earned in fixed deposits is almost twice that of the savings account depending on the tenure. Also, the savings account attract charges in the form of issuance of debit card, cheque book etc.,

Dormant Account

If a savings account is inactive for over two years then the bank considers it as dormant and a customer would not be in a position to carry out any transactions. The account gets activated only by a written request by all the holders of the account.

As part of the Income tax returns, an individual is required to disclose the details of bank accounts held in a year. The income tax authorities could start suspecting individuals opening or operating numerous bank accounts.

So, what is the ideal number ?

Although it is difficult to put a number around the bank accounts one should have, the ideal number is between two to three. As more bank accounts would mean lesser utilisation of funds owing to maintenance of minimum balance. Also, it becomes practically difficult to monitor a large number of bank accounts.

Ideally, one should have a permanent bank account linking their key financial investments like demat, EPF, PPF, Credit cards etc. The salary account becomes a temporary bank account. Transfer the salary credit to the permanent account monthly. Close the salary account when you change jobs. Perhaps, one can even open a joint account with family members so that money can be accessed in case of emergency !