As someone who receives a regular salary, you’re likely familiar with the benefits of having a salary account. In the past, employees used to receive their salary in the form of cash or a physical cheque, which they had to deposit into their bank account and then withdraw using a self-cheque. This was a cumbersome and time-consuming process, as it required a visit to the bank every month.
However, now many employers have started depositing salaries directly into their employees’ bank accounts, thereby eliminating the need for physical cheques and simplifying the process. This has led to the creation of a special type of bank account known as a salary account, which is specifically designed for this purpose.
Understanding the Difference between Savings and Salary Accounts
A savings account is a versatile bank account that’s widely popular among individuals, as it can be used for various purposes such as saving and withdrawing money. The interest rate offered on savings accounts varies from bank to bank, typically ranging from 3% p.a. to 4% p.a.
A savings account generally requires maintaining an average minimum balance, unless it is specified as a zero-balance savings account. This type of savings account allows you to maintain a savings account without worrying about maintaining a minimum balance or facing any related penalties. It’s important to research and find the best zero-balance savings account before opening one.
Moreover, each savings account has a daily cash withdrawal limit that may vary for branch cash withdrawals and ATM withdrawals. This means that there is a limit to the amount of cash that can be withdrawn from a savings account per day, and this limit may differ based on the mode of withdrawal.
A salary account is a type of savings account that is specifically designed to receive an individual’s monthly salary. This type of account is usually opened by corporations through banks to pay salaries to their employees.
Salary accounts offer the same benefits and interest rates as regular savings accounts, although some banks may offer slightly different interest rates for saving and salary accounts.
One of the key advantages of a salary account is that there is usually no minimum balance requirement, which means that account holders do not have to worry about maintaining a certain balance in their account to avoid penalties. This is different from regular savings accounts that often require a minimum balance to be maintained.
Why Having Separate Salary and Savings Accounts is a Smart Move?
1. Organised Finances
Separating your salary and savings accounts can simplify your budgeting and help you manage your money better. It enables you to track expenses more easily, as you can use a single account to pay for specific bills, rather than making all transactions from one account. With separate accounts, you can also avoid accidentally dipping into your savings when paying bills, helping you build your savings and reach your long-term financial goals. Overall, having separate accounts can make it easier to stay on top of your finances and achieve greater financial stability.
2. Helps You Achieve Your Financial Targets with Ease
Maintaining a separate account for your expenses can offer numerous benefits. By monitoring your spending, you can gain a deeper understanding of your financial habits and pinpoint areas where you can reduce your expenses. Further, creating a monthly budget and transferring only the necessary amount from your salary account to your savings account can help you manage your monthly expenses while limiting withdrawals from your salary account.
This strategy can aid you in staying within your budget and motivating you to save more money each month. In case of emergencies, having a separate account also allows for easy access to funds through digital modes, making it a convenient and practical approach to managing your finances. Having separate accounts also has the benefit of clearly differentiating accounts for expenses, savings and investments. By doing this, you have a clear differentiation in your mind and in your finances when it comes to expenditure and investing.
3. Helps you with Maximizing Your Rewards
Maintaining separate salary and savings accounts can provide a host of rewards and benefits on different types of transactions. These accounts may offer cashback, incentives, and other bonuses for various online transactions done through different payment methods. It’s important to note that the rewards and benefits may vary depending on the bank and the type of account.
For example, your salary account’s debit card may offer 5% cashback at a particular electronics store, while your savings account may provide 1% cashback on entertainment spends. By making a smart choice at the time of purchase, you can save a considerable amount of money every month, making it a cost-effective approach to managing your finances.
4. You Can Earn More Interest
While most banks offer similar interest rates on both salary and savings accounts, some banks may provide slightly lower interest rates on salary accounts. In such cases, transferring the funds to a high-interest savings account can help you earn more interest on your account balance. Furthermore, it’s advisable to consider investing any balance left after your monthly expenses in a fixed deposit to earn even more interest. The interest rates on fixed deposits can vary significantly from bank to bank, making it essential to select a bank that offers higher interest rates. By having an additional savings account, you can choose the right bank to open a fixed deposit account and potentially earn more money on your savings.