Types of Savings Accounts: Which One is the Best for You?
Saving for the future is the most important financial habit everyone should form, regardless of their age!
To help you build this habit, a savings account was introduced. However, many people feel like they don’t need to open one as they can discipline themselves when it comes to money matters. But what they don’t understand is that a savings account makes a great investment option in the long run.
Why Open a Savings Account?
You might wonder why you need to open a separate account for saving when you can simply use your regular account and discipline yourself, right? Wrong!
Despite telling yourself you won’t use up the money in your account, creating financial stringency is difficult and will take years to form that habit. Opening a savings account will bring you one step closer to being financially disciplined by keeping your money out of sight. And as the saying goes – out of sight, out of mind – ultimately, saving your money in a separate account will help you control your urge to shop unnecessarily.
On top of all this, there are several benefits of opening a savings account like:
1
Earn Interest on What You Save
All savings accounts have an interest rate latched to whatever savings you make. In other words, the bank will pay you an annual or quarter interest rate for trusting them with your hard-earned money. This rate varies based on the economy and competitiveness.
Usually, savings accounts are infamous for giving low-interest rates, but nowadays, digital savings accounts like Freo Save provide you with the option to earn up to 7% interest rate, which is the highest in the current market.
2
Access Anytime
Gone are the days when you would have to wait in bank queues or search for an ATM to transfer funds. Today’s tech-savvy generation wants to fulfil their financial businesses at their fingertips. Hence, every bank has its own app that allows you to operate your account through your internet-connected device. You can even set up automatic transfers where you can transfer a portion of your paycheck into your savings account. Moreover, you can access your savings anytime you want!
3
Few Limitations
Anyone, and we mean anyone (it doesn’t matter what economic background you come from), can open a savings account when they hit the age of 18. All you need is your identity proof and a minimum deposit amount. Some savings accounts do not have a minimum balance requirement. This is a great fit for people who don’t want to worry about their balance after depositing funds.
10 Types of Savings Accounts
Savings accounts differ from one another based on what they offer and what they are designed to do. Let’s learn about the different types of savings accounts:
1
Zero Balance Savings Account
With a zero-balance savings account, you can spend the last penny without worrying about paying maintenance fees! Usually, when you open a savings account, the bank has set a specific amount limit that needs to be maintained. For example, some banks have the requirement of maintaining a minimum amount of ₹5,000. If you don't maintain it, you're liable to pay the maintenance fee. In contrast to this concept, a zero-balance account does not mandate you to have such requirements.
Officially known as the Basic Savings Bank Deposit (BSBD), users are encouraged to save more with this account. Anyone who wants to opt for a model that's more like a regular savings account, but doesn't want to go through the hassles of maintaining a minimum balance, can open a BSBD. There are no restrictions on age or income. According to the RBI, there's no limit to the number or the value of deposits made monthly in your BSBD account. However, only four withdrawals, including ATMs, are allowed monthly. You need to remember that you cannot open any other type of savings account in the same bank you have your BSBD. If you have an existing savings account in that bank, you are required to shut it down within 30 days of opening a BSBD.
If you are searching for a zero-balance digital savings account that gives the maximum interest rate in India, Freo Save is an option to go for! We offer you a 7% interest rate on your savings and other benefits like safe and secure banking facilities, insurance on balance, and 100% guaranteed data security! Moreover, after opening a savings account on Freo, you unlock other Freo credit and shopping options like app-based credit line MoneyTap, and the "Shop Now, Pay Later" module from Freo Pay.
Get Started with Your Zero-Balance Account Today!
2
Regular Savings Account
A regular savings account is perfect for you if you are searching for a basic bank account that gives you interest on your savings to achieve your short-term financial goals! This is the type of account you initially begin with when you start your financial independence journey.
To open this account, you need to have a minimum initial deposit. The value of this deposit differs in urban, semi-urban, and rural areas. Different banks have different initial deposit rates, so check yours before you open one. Similarly, depending on banks and areas (urban, semi-urban, and rural), you are mandated to maintain a minimum monthly balance. You earn interest rates that differ from bank to bank. There are limits to how many monthly transactions and withdrawals you can make. Usually, banks allow six withdrawals before enforcing penalties.
Depending on the bank you are opening your regular savings account with, you get additional benefits of doorstep banking services, instant money transfer, debit card, phone, and net banking, SMS alerts, statements, and more.
3
Women's Savings Account
Meant for today's independent woman, a women's savings account keeps in mind the different needs of a modern woman. If you are a woman looking to open a sole or joint savings account to earn interest on your savings, a women's savings account is perfect!
To open one, you need to keep a minimum initial deposit. The deposit amount differs from bank and area (urban, semi-urban, and rural). Moreover, you need to maintain a minimum monthly balance. Generally, this balance is ₹10,000 for urban and ₹5,000 for rural areas. Some banks even offer women access to lower processing fees, cashback offers, home banking services, cash delivery and pick-up, cheque delivery, unlimited withdrawals, accidental cover, and other benefits usually not seen in a normal savings account.
4
Kid's Savings Account
There's never a right age to make your child financially knowledgeable. In fact, it's preferred to start at a young age. Opening a kid's savings account is perfect for teaching your child how to manage money, save for the future, and learn other vital aspects of personal finance. Every bank provides different interest rates and benefits, it's important to look through and decide which one is the most beneficial to you. The most interest rate a bank can offer is up to 6%. Several banks provide benefits like free passbooks, e-statements, debit cards, and insurance.
A parent of a minor below 10 can open and operate it on their child's behalf. But, if the minor's account is opened between the ages of 10 and 18, your child can operate the account independently. And once the child turns 18, the account will become inoperative and can be converted into a regular savings account.
The minor's savings account is subjected to several restrictions. Lesser features are available. For example, features like internet banking, chequebooks, ATMs, or debit cards can be available, but they will come with restrictions. Most banks would only allow inter-bank funds transfers. A minimum balance needs to be maintained. Some banks even have a daily spending limit ranging from ₹1,000 to ₹5,000. You may even be imposed a certain limit for total debits from the account.
5
Senior Citizen's Savings Account
The Indian government has offered a Senior Citizens' Savings Scheme (SCSS) that aids the elderly in saving for their retirement while getting paid quarterly interest.
Individuals above 60 can open this account and get the endless benefits of long-term financial security with attractive features. Several other advantages include:
Tax benefits
Premature withdrawals
Opening more than one account by yourself or a joint account with your spouse
Adding nominations while opening the account or after opening and account
Five years maturity period that can be extended by three more years
6
Family Savings Account
Family members with their savings accounts in the same bank can club them together and turn them into a family savings account. Family members include spouses, kids, parents, in-laws, grandparents, grandkids, and siblings. A minimum of two accounts and a maximum of six are allowed. Many banks offer different benefits, such as discounts on gold lockers, Demat accounts, debit or credit cards, etc., at a lower interest rate.
Here, the maintenance will be on a group level, so you don't have to maintain a minimum balance on every single account. For example, if each individual has to maintain a minimum of ₹50,000 in their individual savings account, then the total minimum balance requirement in a family savings account would be ₹1,00,000. The fees are collected from the family's head account if the minimum balance is not met. And if they don't have enough funds, the fees will be collected from other members' accounts. Any member of the group can leave at any time. If the family head wishes to leave the family account, they will need the consent of every family member. Once it is granted, the family savings account will be dissolved.
7
Salary-based Savings Account
Only an employer can set a salary account to credit your salary into it every month. Employers usually tie up with certain banks to open salary-based savings accounts for their employees. And since it is a type of savings account, account holders get interest on the amount maintained.
The interest is usually counted daily and deposited into your account quarterly. You don't have to maintain a minimum balance. If the account is not credited with salary for more than three months, it is converted into a regular saving account with a minimum balance requirement. Account holders can take advantage of online fund transfers, phone and net banking, chequebook, debit card, and easy access to loan and investment services.
8
Health Savings Account
A health savings account (HSA) offers health insurance coverage while also providing savings to fund your future medical expenses. It is a great alternative to traditional health insurance plans and acts like a regular savings account, where you can deposit money and earn interest to use later for health-related expenses.
With an HSA, you can cover 100% of your routine medical expenses like clinic visits, lab tests, and prescription-based medicines. Some banks offer an interest rate of up to 5% and also cover pre- and post-hospitalisation costs, daycare treatment, cashless transactions, and more! In case of hospitalisation or emergencies, you can settle a reimbursement through an HSA. This savings account is great for people not covered by a regular health insurance plan but looking to pay their medical expenses.
A minimum balance must be maintained in the account. Anyone eligible to open a traditional savings account can open an HSA. However, this requirement may change for different banks. Transaction and withdrawal limits differ from bank to bank. Generally, these limits range from ₹10,000 to ₹1,00,000.
9
Student’s Savings Account
It's never too early or late to begin saving, and banks encourage students to start saving with a student savings account. Since the younger generation is all for easier and quicker accessibility, banks lure them by offering easier deposits. A student savings account is perfect for cash-strapped students because it offers easy access to cash and low fees with less to no minimum balance requirement.
Since this is a youth-focused account, banks keep the digital experience as a priority. There are certain daily withdrawal limits. Some banks even provide benefits such as free chequebooks or ATM cards.
10
Business Savings Account
While many business owners opt for current accounts with no daily withdrawal limitations to handle their business needs, you also have the option to choose a business savings account. Commonly, this savings account is used by businessmen who actively put aside some money in a savings account. They can use this account to create a safety net and meet unexpected expenses like emergencies or tax payments.
As your business grows, this accumulated money will be helpful in the long run. You will need to spend on project expansion, marketing, etc. So, instead of resorting to borrowing, business owners can just dig up from their business savings account and fund these necessities. Moreover, payment of taxes gets easier. For example, businesses have daily, weekly, monthly, quarterly, and annual expenses. Among these, the daily, weekly, and even monthly ones are easy to budget since they stay on top of your mind. But the quarterly and annual expenses like income tax can hit your cash reserve if not budgeted correctly. People often use a business savings account to endure heavy income tax payments so that their other working budget is not affected.
Which One is the Best for You?
With all the options mentioned above, it might get overwhelming for you to pick one based on your needs and goals.
Most people open a savings account to satisfy their short-term financial goals, while some want to save for old age. Whatever the reason might be, a savings account is flexible enough to gratify your needs. We have segregated the general needs of people who open a savings account and curated a list that might help you choose the best account from the above.
If you want to earn a high-interest rate
Many people are interested in a savings account's interest rate. Although infamous for returning lower interest rates, you might think a savings account is not for you if your goal is higher returns. However, that's not completely true. Today, neobanks have made it possible to provide high-interest rates on their savings accounts. So, if this is your ultimate goal, your best bet is:
High-yield Savings Account
If you are not concerned about the interest rates
The next category is of people who do not care about the interest rate of a savings account. They are more concerned about just beginning their journey to save and form financial discipline. For such people, the best account is:
Regular Savings Account
If you want to fulfil a particular financial goal
Some people open a savings account with a specific goal in their mind, like teaching their kids to save or keeping some funds aside for business purposes. If you fall in this category, here are your best options:
Kid's Savings Account
Business Savings Account
Health Savings Account
Student's Savings Account
If you want to gain tax benefits
Some savings account come with tax benefits. These are usually meant for senior citizens looking to save for their retirement. If you want to gain tax benefits with your savings account, here's your option:
Senior Citizen's Savings Account
If you don't want to pay maintenance fees
Several savings accounts expect you to pay maintenance fees if you don't fulfil the minimum balance criteria of that account. But if you want to escape from that term, here's a savings account for you:
Zero-balance Savings Account
