The spread of digital banking has enabled people to open savings accounts online or through mobile apps from the comfort of their homes. An individual can apply online, complete a video KYC, and open an account in a matter of a few minutes. This ease of use has also allowed people to open multiple savings accounts in different banks.
Holding multiple savings accounts has its advantages and disadvantages. Here are some of the benefits:
Perks and Privileges
Most banks offer features such as multiple lockers, insurance, premium debit cards and other privileges that one can use. Additionally, account holders get rewards and discounts on making utility payments, shopping, and EMIs. Hence, holding multiple accounts can help you maximise savings while spending.
Ease of Access
With banks capping the number of free withdrawals from ATMs every month, multiple accounts allow one to transact from many other ATMs and save on associated charges. This is especially beneficial for frequent users of ATMs.
Goal-specific Accounts
Many individuals deposit money in different savings accounts to meet goals such as overseas travel, vehicle purchase, and higher education. Some open joint accounts for family members just for daily expenses. Many keep a separate account as a contingency or emergency fund as well.
Banking Partner Privileges
Various online and e-commerce portals tie up with a bank to provide exclusive deals and offers for their customers. With multiple accounts in different banks, one can avail a wider range of such offers.
Security
An amount up to Rs 5 lakh in a scheduled bank is insured by the Deposit Insurance and Credit Guarantee Corporation, a subsidiary of the Reserve Bank of India. The corporation covers the amount held by account holders when a bank fails to pay them.
Placing all funds in one bank can be risky if the amount exceeds Rs 5 lakh. Depositing the funds in different banks will ensure that each of them is separately covered by insurance. Such accounts can be used as a backup in case of a default by the bank where one has the primary account.
However, holding multiple accounts also has certain limitations:
AMB Requirement
Account holders need to maintain an average monthly balance (AMB) in each of their accounts and failing to do so attracts a penalty. It’s easy to miss out on maintaining the AMB while managing multiple accounts.
Loss of Interest Amount
Not all banks provide the same interest rate on savings accounts. Depositing money in multiple savings accounts can lead to a loss of interest compared to having all funds in a single, high-yielding savings account. Many banks provide higher interest if the deposited amount is above a certain threshold. If money is deposited in multiple accounts and the threshold is missed, one will lose out on this interest.
Fees and Charges
Most savings accounts come with certain annual fees and charges such as ATM charges, locker fees, and maintenance fees. Paying these fees and charges for all accounts can eat into the overall interest earned.
Hassle of tracking
For those who are not financially disciplined, keeping track of multiple cheque books, debit cards, net banking user IDs and passwords, and AMB can be cumbersome.
A decision on holding multiple saving accounts should depend on the frequency and pattern of transactions, volumes, and risk-hedging needs. Multiple accounts may not be needed if financial transactions are restricted to one or two a week. It may be prudent to close idle savings accounts or those with poor features to avoid costs such as annual card charges and the opportunity cost of maintaining AMB.
An additional savings account should be opened only if it matches one’s requirements and offers a relatively higher interest rate.
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