Saving as a child meant resisting the urge to spend every coin in our piggy bank on treats. While the principle remains the same, our grown-up version has evolved to navigate various savings options in our ever-changing economy. The options have expanded, and so have the questions: What are savings? What is the difference between saving and investing? Where should you park your savings?
In this blog, we will answer these questions and see how savings can help deal with unexpected financial stress and act as a safety net in times of need.
What are Savings?
Saving money is not just about accumulating wealth; it's about ensuring you're financially secure and achieving long-term goals. It builds financial stability and is a stepping stone towards a better financial future. Savings refers to the money set aside for future use, often kept in different types of accounts. It can be for emergencies, big purchases, or retirement.
For example, Aman's monthly income is ₹50,000. His expenses total ₹41,200 every month. We can calculate his savings by this simple formula:
Savings per month = Monthly Income - Monthly Expenses
= ₹50,000 - ₹41,200 = ₹8,800
In this case, Aman would save ₹8,800 each month. He could direct these savings towards an emergency fund, a down payment on a house, or retirement savings. This simple example illustrates how the practice of saving can translate into real financial progress and security.
Importance of Savings
When financial issues come, they seldom come alone. This is why starting to save money early is really important. Think of savings like an umbrella. Building a financial safety net through consistent savings provides a shield against life's downpours. It allows one to handle unexpected financial crises without jeopardising long-term goals or plunging into debt.
Saving vs. Investing
People often confuse "saving" and "investing." Although both are essential to financial well-being, they play distinct roles. Saving is about setting money aside without spending it, while investing involves putting money into assets like stocks, bonds, or real estate with the prospect of generating returns.
| Basis | Saving | Investing |
| Purpose | Setting aside money for future needs or emergencies | Growing wealth and generating potential returns |
| Risk | Generally low risk | Involves varying degrees of risk depending on the investment |
| Return | Interest earned on savings | Returns generated from investments (asset gain/ losses, dividend etc.) |
| Examples | Savings accounts, Fixed Deposits | Stocks, Mutual Funds, Real Estate, business ventures etc. |
What is a Savings Account?
A savings account is a banking facility that allows you to deposit funds and earn interest at an agreed-upon rate. Savings accounts are known for their simplicity, security, dependability, and immediate fund accessibility.
Banks generate interest on deposits at a variable rate. Interest payments follow a regular schedule - monthly, quarterly, semi-annually, or annually. Savings accounts' ability to promptly withdraw the entire balance, providing flexibility and control of funds, is one of its distinguishing features.
Features of a Savings Account
Savings accounts are one of the simplest banking instruments for many Indians. Here are some key features of a savings account:
- Interest Range: Savings account balance earns interest from 2% to 7%. Senior citizens often receive an additional 0.5% boost.
- High Liquidity: You can enjoy unlimited withdrawals and transfers for easy access to your funds.
- Debit/ATM Cards: You can use debit/ATM cards for making payments, online transactions, and cash withdrawals.
- Fund Transfers: UPI, NEFT, IMPS, or RTGS via various channels make fund transfers effortless.
- Access Options: You can manage your accounts via net banking, mobile banking, phone banking, or SMS banking.
- Fixed Deposit Linking: Linking savings accounts with fixed deposits is possible.
- Interest Payout Frequency: You have the flexibility to choose payout frequency - monthly, quarterly, semi-annually, or annually.
- Special Deals: You can enjoy special offers and discounts on your savings accounts and debit cards.
- Cheque Convenience: You can also deposit and issue cheques through the savings account conveniently.
- MAB Requirement: Some accounts require adherence to Monthly Average Balance (MAB) criteria.
Auto Sweep in Savings Account
While a hefty savings account balance sounds comforting, it is necessary to understand that money left idle will never grow on its own. Many of us focus on more complex investment options like shares, debentures, or property, often overlooking simple banking product investments. One such option is the 'auto-sweep' facility, which can be easily incorporated into a savings account, using idle funds to generate better value.
The auto-sweep feature links your savings account to a fixed deposit, transferring excess funds to earn higher returns. When your savings exceed a set limit, the excess is immediately swept into the fixed deposit account, allowing your idle money to grow at a faster interest rate than it would in a standard savings account.
Types of Savings Accounts
Banks offer various savings account options, each tailored to meet the unique needs and benefits of different customers. Let us explore the diverse savings accounts available and decide which account suits the best with your financial goals:
Regular Savings Account
- It is a basic savings account that anyone can open.
- Account holders earn interest, though banks might charge an annual maintenance fee.
- Most banks require a minimum average monthly balance in these accounts.
- Account setup follows a comprehensive KYC procedure.
Zero Balance or Basic Savings Bank Deposit Account
- There's no need to maintain a minimum average monthly balance. You can open this account with a zero balance.
- Banks impose restrictions like limited ATM withdrawals, specific debit card types, and no chequebook facility due to the lack of MAB.
Instant Digital Savings Account
- It only takes a few minutes to open a digital savings account online via online banking or a mobile app.
- Completion of the KYC process within the given period is mandatory, or the account can get suspended.
- Most instant digital savings accounts have a maximum deposit limit of ₹1 lakh.
Senior Citizens' Savings Account
- A senior citizen savings account is tailored for individuals over 60.
- It offers enhanced interest rates on deposits, reduced credit interest, and a dedicated relationship manager.
Women's Savings Account
- This account is exclusively for women
- It offers distinct benefits like unique debit cards, reduced minimum balance requirements, and preferential loan/credit offers.
- Other benefits may include locker discounts, free multicity chequebooks, and unlimited ATM withdrawals.
Kids' Savings Account
- Parents or guardians open these accounts for children under 18.
- A kids' savings account aims to teach banking basics and encourage responsible financial habits from a young age.
- This account requires identity proof and declaration from parents or guardians.
- It comes with controlled deposit and spending limits.
Family Savings Account
- A family can open multiple accounts under one family ID, including savings accounts, fixed deposits, recurring deposits, etc., in a family savings account.
- Spouses, children, parents, grandchildren, grandparents, and in-laws are eligible to open this account.
Salary Account
- This account is specifically for salaried individuals receiving monthly wages.
- Banks offer special benefits for these accounts, like zero balance, complimentary chequebook and international debit card, preferential loan interest rates, free personal accidental insurance, and more.
Best Saving Plans in India
There are several saving schemes to promote investment and high returns offered by the government of India, banks, and financial companies. You must look at both pros and cons of any investment plans or options before investing. We have put together a list of the top 5 savings plans for 2023 that you can use to save for your future.
| Savings Plans | Current Interest Rates |
| Public Provident Fund | 7.1% |
| Employees Provident Fund | 8.15% |
| Post Office Monthly Income Scheme | 7.4% |
| National Savings Certificates | 7.7% |
| Senior Citizen Savings Scheme | 8.2% |
Public Provident Fund (PPF)
PPF has a base tenure of 15 years, which is extendable in 5-year blocks. You can invest anywhere between ₹500 and ₹1.5 lakh yearly, in a lump sum or 12 instalments. Remember, your investments worth more than ₹1.5 lakh won't earn interest or tax benefits.
- Deposit frequency: At least 1 deposit per year for 15 years
- Deposit mode: Cash, cheque, DD, online transfer
- Nomination: Nominee designation during account opening or later
- Joint accounts: Only one individual can hold a PPF account; joint accounts are not allowed.
- Risk: PPF is backed by the Indian government and assures safe, fixed returns.
- Tax benefit: PPF interest and maturity amount are tax-free under section 80C.
Employee Provident Fund (EPF)
The Employee Provident Fund Organization (EPFO) introduced EPF for salaried individuals. It is a mandatory government savings scheme. Employees and employers each contribute 12% of the employee’s monthly salary to the Provident Fund (PF) account. This contribution helps individuals save for retirement and plan for a stress-free post-working life.
- Deposit frequency: Deposits are made every month.
- Deposit mode: A portion of the monthly salary is automatically deducted and deposited in the PF account.
- Interest Rate: The annual interest rate on contributions ranges from 8% to 12%.
- Interest Crediting: Interest is added to the employees' accounts on April 1st of each financial year.
Post Office Monthly Income Scheme (POMIS)
Backed by the government, POMIS guarantees the safety of the invested money until maturity. You can withdraw funds or reinvest them in the scheme after its maturity. The Post Office Monthly Income Scheme provides higher returns than similar investment plans.
- Eligibility: Available exclusively for Indian citizens; minors above 10 years of age can also open accounts.
- Deposit frequency: Deposits are made every month.
- Multiple accounts are allowed, but the total amount can't exceed ₹4,50,000.
- Fund Transfers: Investments can be easily transferred to another post office during relocation, free of cost.
National Savings Certificates (NSC)
NSC is a fixed-income savings plan offered by the government of India that you can open at a post office. The National Savings Certificate savings scheme aims at small to mid-income investors for savings and tax benefits. You can start your investment in NSC with as low as ₹1000, and minors can jointly invest with their parents or guardians. To enrol in this scheme, you must submit the required documents and complete your KYC at the nearest post office.
- Maturity periods: 5 and 10 years; no maximum purchase limit
- Maximum investment limit for a tax break: ₹1,50,000 per year (Section 80C)
- Eligibility: Open to all except Hindu Undivided Families (HUFs), trusts, and non-resident Indians (NRIs)
- Nomination: Nomination of family members is possible, even minors, in case of the investor's demise.
Senior Citizen Savings Scheme
The senior citizen savings scheme is an excellent tax-saving plan that offers safety and regular income for retirees seeking low-risk investments and tax efficiency. Individuals aged 60+, 55-60-year-olds with Voluntary Retirement Scheme/Superannuation, and retired Defense Personnel aged 50+ can invest in this scheme through post offices and certified Indian banks within a month after receiving retirement benefits.
- Max investment: Up to ₹15 lakh per person via single or joint account; not exceeding retirement benefits
- Account Flexibility: Multiple accounts are allowed within the maximum limit.
- Deposit mode: Senior citizens can start an account with cash (< ₹1 lakh) or cheque (≥ ₹1 lakh).
- Required documents: Identity proof, age, address proofs, photos, filled form
- Tenure: 5 years, extendable by 3; Tax deduction: up to ₹1,50,000 (Section 80C)
- Premature withdrawal: After one year, premature withdrawals are subject to penalties: <2 years (1.5%) and >2 years (1%).
Why is saving important?
- Emergency Preparedness: Saving provides a financial safety net for unexpected expenses or emergencies.
- Goal Achievement: Saving helps you work towards your financial goals, such as buying a house or planning for retirement.
- Financial Freedom: Saving offers flexibility and freedom to make choices based on your preferences and provides a sense of security.
How can you start saving money?
- Set clear savings goals.
- Track expenses and create a budget.
- Reduce unnecessary expenses.
- Automate savings with MiniSave on INDmoney.
Remember, consistency and discipline are key to successful saving.
What is the difference between saving and investing?
Savings are money set aside for the future, while investments involve putting money into assets for potential long-term returns.
What is the 50-30-20 rule?
The 50-30-20 rule is a budgeting guideline that suggests allocating 50% of your income to necessities, 30% to wants, and 20% to savings and debt repayments.