Here’s How Maintaining Multiple Bank Accounts Brings High Value

To be sure, not all companies impose such conditions. It is illegal for employers to deny salaries to employees on these grounds, a lawyer, who did not wish to be identified, told Mint. Two of the salary accounts opened earlier by a Delhi resident are no longer zero balance accounts as these were converted into regular savings accounts by the respective banks. “Now, I have to maintain Average Monthly Balance (AMB) 10,000 in each of those accounts,” he said.

This is not a standalone matter and highlights that maintaining AMB is the biggest expense associated with savings account.

Bangalore-based Sagar Saha has almost had to shut down 1.3 lakh across four accounts to meet MAB requirements. The total interest earned on all his savings accounts in the current financial year will exceed 10,000 and he will have to pay 30% tax on it (as per his tax slab). However, Saha has opened these accounts of his own free will due to various reasons.

The 29-year-old said, “One was opened to lock-in Recurring Deposits (RDs) at a higher interest rate of 8.3%, one was for better digital banking services and the remaining two were opened as salary accounts. “

While it is easy to open multiple bank accounts, maintaining them all can be quite challenging.

strings attached

There is a minimum amount you need to lock in to maintain an AMB, and the more accounts you have, the more money you have to keep in those accounts. This amount will lose value over time as the interest rate on savings accounts is 2.5-4%, which is much lower than the inflation rate.

In addition, failing to maintain the minimum balance attracts a hefty monthly penalty of 1.5-6% of the AMB (see table), which can eat into the net interest yield. Bank accounts with fixed deposits of RD or more 1 Lakh AMB is not required. AMB is calculated by adding the closing balance of each day and dividing by the number of days in that month. This means you will need to closely monitor those account statements on a regular basis to make sure you are not going below the AMB limit. But imagine doing this with 5-6 accounts.

“Depositing the minimum required amount only as a one-time measure may not be enough as banks auto-debit certain service charges which can reduce your balance. This happened to me once when I did not Saw my bank deduct annual debit card charges, causing my balance to drop below the minimum limit and penalize me for not maintaining the account,” said Vineet Iyer, Co-Founder, Wealth Creators Financial Advisor, SEBI Registered Investments Advisor.

Note that banks do not notify customers in the event of a default on AMB or before any penalty is imposed.

Many customers are not even aware that banks convert a zero balance salary account into a regular savings account (which mandates AMB) if salaries are not credited for three to six months in a row. Again, banks do not notify customers before converting the account.

Multiple bank accounts also add to the tedious task of filing income tax returns (ITRs) as you will still need to report these in the return even if the total interest income is less than the exemption limit. “Now that taxpayers have access to AIS (Annual Information Statement), they can’t afford to miss it,” said Rohit Shah, principal officer, GYR Financial Planners, a SEBI-registered investment advisory firm.

In addition, records must be kept of all online banking login details that are unique to each account, track debit card expiration and renewal dates and ensure that payments are made on time to prevent any account deactivation .

One of the few benefits of having more than one account is that you can get benefits on purchases with multiple debit cards. However, banks usually offer such perks to Prime customers (those with higher monthly incomes). Note that the more rewards offered on the card, the higher its annual fee.

Saha has not given up his Citibank account because of this. “I get cashback, rewards on almost all the purchases I make through my debit card. Also, it offers flat discounts on purchases with select merchants like Apple. For me, the rewards on my Citibank account are more than the service cost that I have to pay to maintain it,” he said.

How much is too much

Financial advisors are of the opinion that having three bank accounts is more than enough. Shah said that a complex financial life is one of the fundamental pre-requisites for financial independence. “Closing those extra bank accounts is the easiest way to bolster your financial life,” he said.

Iyer agreed and said, “There could be one permanent account for all income, one account for household expenses, which could be a joint account with your spouse, and the third for personal expenses. “

Most of the private banks allow you to close the accounts online on their netbanking website after clearing all the dues, but State Bank of India and some other banks will ask you to do so only at a physical branch.

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