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5 Essential Savings Account Terms You Need to Know
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Having a savings bank account is a must in today’s day and age. The benefits of a savings account are several, from easy fund transfer to earning interest on the balance. But before offline or online savings account opening, it’s important to familiarise yourself with a few essential savings account terms. This will help you understand and operate your savings account with confidence and better manage your finances.
1. Minimum balance
Most savings accounts have a minimum balance requirement. This is the amount that should be always in your account as balance otherwise a non-maintenance charge may be levied. For instance, say the minimum balance requirement for the savings account you open is Rs 5,000. If your balance ends up going below Rs 5,000, say Rs 4,000, your bank may charge you a penalty.
2. KYC
Know Your Customer or KYC is the process through which the bank verifies your identity, address, and income, when you open a savings account. The KYC documents required for bank accounts include documents like Aadhaar card, PAN, etc., and are necessary for offline or online saving account opening.
3. Interest rate
One of the benefits of savings accounts is that they offer interest on your account balance. This allows your funds sitting idle in the bank to earn money and set up a passive source of income for you. Depending on the bank and the type of savings account, the interest rate could be anywhere from 2% to 4.5%. There are high-yield savings accounts that tend to offer high interest rates and make for an attractive option for when you want to earn returns while having your money be highly liquid.
4. NEFT and RTGS
NEFT or National Electronics Funds Transfer is a payment system that allows for transferring funds from one bank account to another. RTGS or Real Time Gross Settlement is also a type of wire transfer system. There are a few differences between NEFT and RTGS when it comes to the amount and transfer time. The minimum amount for RTGS transfers is Rs 2 lakh while there is no upper limit. Conversely for NEFT transfers there is no minimum limit and the maximum is Rs 2 lakh. NEFT transfers also take a little longer than RTGS transfers.
5. DIGC
Deposit Insurance and Credit Guarantee Corporation (DIGC) is a division of the Reserve Bank of India that protects your money in savings accounts with banks up to Rs 5 lakh. This includes your account balance, fixed deposits, and interest earned. So, in case the bank liquidates, your money up to Rs 5 lakh is insured by DIGC. This Rs 5 lakh limit is per person per bank account. If you have bank accounts in two different banks, you will have the DIGC protection of Rs 5 lakh for each bank account. Hence, it’s crucial to make sure that you don’t have more than Rs 5 lakh in any single savings account.
There are some other terms that you might want to look into such as compound interest, ATM card, mobile banking, etc., if you don’t know them already. These are important features and benefits of savings accounts and can make money management a lot easier for you.
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