Have you ever wondered how much interest your savings bank account is generating? Have you ever thought, just keeping a savings account is enough for you?
If you are looking for ways to maximise benefits from a savings bank account, this page will give you a few ideas on it.
One needs to be smart when it comes to financial management. Spending some time managing your funds is a good habit that brings positive results. Small things matter, even an investment of ₹1000 a month can really make a difference.
So, basically, there are a few things we need to understand if we want to have better financial growth. Financial discipline and strong commitment are the pillars of successful wealth growth. Starting investment at the right age, having patience throughout the journey as there is no shortcut and understanding how money works are a few of the basic things that lead you toward goal achievement.
Most of us have had banking relations for decades but the real thing is understanding what products the bank offers you and knowing the features of these products will further make you decide efficiently.
When you have a savings bank account, all you can do is deposit cash in it and use it. As you know, a savings bank account is a kind of running account which you use for your personal transaction. With this account, you can save funds with a nominal interest rate. And you need to see other options that could bring higher returns.
Just SB Account, Is It Enough for You?
What would you say? Is it enough for you?
The interest rate of the Savings bank account would be in the range of 2 to 4 per cent per annum. Per lakh deposit, you would generate ₹2000 to ₹4000 in a year.
Yes, it generates few returns but it’s not sufficient for financial growth. You have got to look for other alternatives which can bring in more money from your own money.
Keeping funds in a savings bank account makes your funds idle. Idle money is a fund that does not generate much income or no income. The interest you are getting will nullifies with various bank charges such as account keeping charges, ATM annual maintenance charges, SMS charges and others.
Best Options For Financial Growth
Next to the savings bank account is the fixed deposits that you can explore. FDs are one of the safest modes of investment which can give you better growth.
Banks offer decent interest rates on fixed deposits. Either you can go for a callable FD which can be withdrawn anytime or you can fix it as a non-callable FD that can be withdrawn only when it matures.
An FD (Fixed Deposit) is an account open for a specific period of time ranging from 7 days to 10 years. Its rate of interest is higher than the savings rate. So, better chance to earn more money.
Various banks offer different rates of interest. These rates are in the range of 4 to 8 per cent per annum. So, the return that you get in savings banks and FDs varies greatly. In FDs you might get at ₹4000 to ₹8000 per annum per lakh as compared to savings bank is only ₹2000 to ₹4000.
Moreover, in FDs, the interest you have earned will get compounded every year. It means you will get interested out of the interest you earn.
With Savings Bank and FDs! Is it Enough for You?
Not happy with the results? Here’s why.
Do you know that the interest you earn in your FD is taxable? Yes, it is. There is a tax deduction at source-TDS applicable to every FD you open in the bank.
The tax rate is 10% of what you earn if you have provided your PAN number in the account. If you do not provide, the bank will deduct 20% from your interest earnings.
So, whatever you earn will get taxed and the leftover is not that good. Considering the outcome of investment with a savings bank account and fixed deposits, you have got to see other options that could mend income leakage toward tax.
Of course, one would start looking for ways and means to minimise the taxable amount. And fortunately, there are ways to address the issues. One of the best ways is to invest in tax-saving schemes and other financial products such as public provident funds where both principal and interest earned are totally exempted from TDS.
Look Out for Investments Where Tax is Exempted!
As it was mentioned earlier, tax-saver FDs and PPFs are one of the most preferred products in the market. In addition to that, a number of products can be availed from the bank which can shield your funds from tax.
Life insurance is one such investment option in which exemption under section 80CC is available under the Income Tax Act. So, you can get benefit out of it.
Secondly, you can go for a mutual fund. It’s remarkably nice and you would not believe what mutual funds can do to your money. The power of compounding will just leave you satisfied and fulfilled. You can also manage your taxable income with mutual investment. Though in the end, your capital gains will be taxable but the tax amount will be greatly reduced as some products of mutual funds calculate tax on considering money depreciation value.
This means the tax amount that you pay on FDs will be higher than the tax that you pay on mutual fund investments. Moreover, you can defer taxable income if invested in MF. SIP is the best way to do it.
Thirdly, you can see health insurance plans. Mediclaims policies work in a beautiful way. One is that it could give you tax exemptions and the other is that, when you are sick, your savings will keep intact as the medical bills will be handled by the insurance company.
The Most Important Thing!
Yes, right before you jump into investing, you need to have a fallback plan. Your first investment should always be on health insurance and life insurance. Once it is done, go forward with mutual funds, either in SIPs or in lump-sum.
What is the point of investment if it is going to use on medical bills? So, think smart. You would not want that to happen.
Everyone does have a different risk appetite and in order to get a higher return you definitely need to take certain risks otherwise it is a fact that your fund would never grow.
So, how do you know your risk appetite? It depends on one’s income compared with the age of the investor. When you have multiple sources of income and you are young then you have a very good risk appetite. You can take hunches and risks at least 30 to 40 per cent of your income.
If your age is between 18 to 30 and you have a good source of income, you have a lot of scope. Your appetite is excellent and taking risks at this age will be worthwhile. Start investing in good portfolios with higher risk mainly in the long-term plan so that can capitalised maximum benefit.
Do not start on your own. As nowadays lots of tempting mobile apps are available. Even the banks are providing apps that one can do on his own. For starters, start investing with a financial advisor or preferably take help from the bank.
As you go through the journey you will get to know things more clearly. With these experiences, you can go for demat account which can give you better deals in the investment market. But always take advice from the financial advisor who would guide you in making the proper decision.
As the person gets older, there are factors that delimit his investment power. Those groups of people are beyond the age of 40s, although with the right plan and commitments, they can reap the benefits.
The Interest That You Earn and Pay
This one needs to be examined properly if you have loans availed from the bank. There is a certain type of loan that runs for decades. One such loan is a home loan, its tenor goes beyond 10 years. If you have such loans, you definitely need to opt for investment besides home insurance.
It will neutralize the interest you pay against your home loan. So, always think from your point of view, how much you are getting and how much are paying needs to be balanced else there will be no growth at all.
There is no shortcut to wealth creation. One has to plan systematically in order to achieve the desired result. Below is a few factors that contribute greatly to financial growth. These can be summed up as below-
- Knowing your risk appetite.
- Start investment at the right age.
- Commitment toward your decision.
- Choose the right product or portfolio.
- Spend less and save more.
It’s never sufficient to have a savings bank account for financial growth. You have to see other options available in the investment market. But you have to start investing in a systematic manner. Start with health and life policies and end with risk-taking investment.
Do investment even if the investment amount is small. It will get bigger with time. When you do that, you would get the confidence in doing more and ultimately it will lead you to a much better financial position than you are now.