Are Multiple Saving Accounts Recommended? How Many Should I Have?

Savings Accounts are one of the most important medium for day to day financial management. Most people in India now have at least one Savings Account. However, with cash withdrawal restrictions on PMC bank & Yes Bank, one of the sought after questions is should you have more than one savings account.

Let’s look at some of the factors on why you should or should not have multiple Savings Accounts. Based upon these, you can find your own answer to this dilemma.

Advantages of Multiple Savings Accounts:

• Diversification of your financial assets: Diversification is one of the key principles of any financial management exercise, not matter how big or small it is. Everyone from large investment banks to a person managing their household expense can benefit from diversification. Similarly, you can also get the protection offered by diversification by having multiple bank accounts. In case one bank is having any challenges, you can always rely on money in your other Saving Account.
• Ability to save for different goals: Having accounts in different banks means that you can save effectively for different goals. For example, money kept in one account can be only marked for regular expenses while money kept in another account can be only kept as a backup to cover all your Credit Card and loan EMIs in case of emergency. Another saving account can be marked to keep money that will be used for annual expenses like health insurance, life insurance, or vehicle insurance.
• Protection from Bank Failure risk: Even though the risk of bank failure in India is extremely low, there can be nothing better than being prepared for every eventuality. Putting money in different bank accounts means that even if something happens to one of your banks, you are covered for the time until the government machinery can kick in and restore normalcy to the financial system.
• Better advantage of bank deposit insurance: Each customer is covered by Deposit Insurance and Credit Guarantee Corporation (DICGC) for deposits up to Rs. 5 lakhs per entity. So having different accounts ensure that you enjoy maximum protection for your hard-earned money.
• Regular branch access for deposits and withdrawals: These days, a number of banks are enforcing a quota of in-branch transactions both at home location and any other location. In a drive to make more people take up digital banking, they have also started charging very high amounts for in-branch transactions over and above the assigned quota. If you have multiple bank accounts, and your purpose is not solved without frequent branch visits, you should take multiple bank accounts. This will ensure you remain safe from branch transaction restrictions.
• Enables you to shop around for Credit Cards and Loans: If you have banking relations with multiple banks, you can check with all of them to find good deals on insurance, loans, and Credit Cards. Your bank account will provide a solid launchpad for you to claim getting better choices for your financial needs.

Disadvantages of Multiple Savings Accounts:

• Extra fees for Debit Card and other services: Almost all banks charge fees for providing Debit Cards. Indeed only a certain number of cheques are free in a given period of time. This means that if you have multiple accounts, you will also have to pay fees for each account.

Imagine a situation where you are maintaining minimum balance in many accounts, and the interest you get is not even enough to cover the fees of Debit Card, you will end up losing money. This is not a very good situation to be in, where you have to pay a bank for them to keep your money with them.

• Too much money locked in minimum balance maintenance: As said earlier, if you have multiple bank accounts, you will also have to maintain a minimum balance in all these accounts. The bank will otherwise start charging you fees for not maintaining a minimum balance. This means that a lot of your money becomes locked in to keep up your accounts active and not becoming liable to pay extra charges for non-maintenance of minimum balance.
• Confusion all around if you do not track things meticulously: Ask any person who has multiple Credit Cards or Loans; if items are not tracked meticulously, there will be a lot of confusion creating risk of losing money and inability to cover an expense at the time when you need to, despite actually having money for it.

You do not want to end up missing an insurance payment because even though you saved up the money for it, it got lost somewhere in the multiple bank accounts.

Read more:Top Savings Accounts for NRIs

• May encounter issues with tax deduction at source: All banks are supposed to deduct taxes on the interest they pay on deposits, provided the interest paid crosses a certain threshold. If you are eligible for a tax refund, you can claim this at the time of filing your tax return. If you have TDS from multiple bank accounts, filing for returns will become a big complicated tangle to solve. Why bother with unnecessary complications!
• Complicates your tax returns: Everyone is supposed to report their bank account information when they file their tax returns. Having multiple bank accounts means you have to collect information about all of them when you are also worried about getting all other information about your income and expenses correct. Not much point creating another work point for yourself in tax season.

Just like many other things, having multiple accounts has both its pros and cons. You will have to weigh your situation on an ongoing basis. In-fact while at one point of time, it may be good for you to have multiple accounts, at some other point of time in your life it many not be as wise a decision. So, you have to choose keeping current conditions in mind and revisit this decision every now and then.