Personal finance world is buzzing; check out what matters

There have been many developments in the recent past that are likely to impact our personal finances. It would be prudent to be aware of these and make appropriate changes, if required.

1.      Savings Account is no longer a dead investment

Great news! Now we need not earn a measly 4% p.a. (3.5% till about a year back) on the money lying in our Bank Savings Account. Get ready to earn at least 1-2% higher returns. RBI has recently announced that it will no longer dictate the Savings Account interest rate. Henceforth, each bank is free to offer whatever rate it may deem fit.

Some banks have already increased the rate to 5-6%. Given the competition, we can expect other banks to follow soon and a range of 5-7% looks likely. The end result is that our Savings Account will no longer be a dead investment. We can now hope to earn some decent returns.

Though, of course, the rates may come down when the interest rate scenario softens. Secondly, some of the free services offered by the banks may become chargeable as they too need to protect their profitability and continue to offer their best services.

2.      Reduction in the free transactions on 3rd party ATMs

Till recently, you could withdraw money from 3rd party ATMs 5 times in a month (up to Rs.10,000 each time) without any charges. Plus you could also carry out any number of non-financial transactions such as balance enquiry, mini-statements without any charges. This has now changed.

From July 2011 onwards, you can do only 5 free transactions — both withdrawal and non-financial transactions put together — on 3rd party ATMs. Any subsequent transaction will be charged, generally between Rs.10-20/transaction.

3.      After mobile number portability you now have health insurance portability

Remember how you had to bear with poor services of a telecom operator as it was not convenient to change your number (at least not very often). That’s history.

The same benefit is now available for your health insurance policies too. You are no longer at the mercy of the health insurance providers. Not happy with your existing insurance company? No problem! Go ahead and switch to another company.

As you would be aware, there is waiting period of usually 2-4 years before the pre-existing illness get covered under a health insurance plan. As such, earlier if one did switch to a new insurer, this benefit was lost and one had to begin from zero. With the health insurance portability, this major deterrence to switching is gone. Now your period with the earlier insurer will be carried forward by the new insurer.

However, make sure that you carefully assess the health insurance plans offered by different insurers. Unfortunately, as on date, there is little standardisation and hence there could be vast differences. It shouldn’t so happen that you move from frying pan to fire.

4.      Transaction charges introduced on buying MFs

Last year SEBI had done away with the entry loads applied by Asset Management Companies on purchase of their mutual fund units.

However, to enable the distributors to at least meet their incidental expenses, SEBI has now permitted them to charge a fixed transaction fee on purchase of MF units. Henceforth investments above Rs.10,000 will attract a transaction charge. This charge has been fixed at Rs.150 for new investors and Rs.100 for existing investors. Of course, investment made directly with the AMC (i.e. without a distributor) will not be charged any transaction fee.

5.      Small Savings schemes undergo a overhaul

Following changes have been made in the various small savings schemes:

• PPF limit increased from Rs.70,000 to Rs.1 lakh per year
• NSC term reduced from 6 to 5 years; a new 10-year NSC introduced
• PO MIS scheme term reduced from 6 to 5 years
• Post office savings account rate increased from 3.5% to 4%
• 5% bonus on Post Office MIS scheme discontinued
• Kisan Vikas Patra scheme discontinued
• Interest rates on various schemes to be now linked to the market rates

• PPF – 8.6% (earlier 8%)
• POMIS – 8.2% (earlier 8%)
• PO Time Deposits – 1 yr : 7.7%; 2 yr : 7.8%; 3 yr : 8%; 5 yr : 8.3%
• PO RD – 8% (earlier 7.5%)
• NSC – 8.4% (earlier 8%)
• 10-yr NSC – 8.7%

(Sanjay Matai is a personal finance advisor ( www.wealtharchitects.in ) and author. ‘Millionaires don’t eat cakes…they make them’ is his latest publication.)