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SBI savings account rate cut: Save money here to get 75 basis points more

Sunil Dhawan
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How to open post office savings account: With the Reserve Bank of India (RBI) cutting the repo rate by 135 basis points in 2019, the impact can be seen not only on lending rates but also on the deposit rates and even on the interest rate on the savings bank account. From November 1, SBI is lowering rate of interest in its savings bank account from 3.5 per cent to 3.25 per cent on balance up to Rs 1 lakh. Few other banks are also reducing their savings bank account interest rate.

The post office (PO) savings account is currently offering 4 per cent per annum, irrespective of the account balance. Further, post office schemes are fully backed by the government with no upper limits. Your savings in post office savings account can earn 75 basis points more than what most other banks will offer.

The PO savings account comes with several benefits and offers more or less similar features as that of savings account in a bank. While internet banking was already a feature in the post office branches with core banking solutions (CBS), recently mobile banking has also been introduced in post offices. You can do a post office savings account balance check sitting in your home or office. For banking transactions, the account comes with a cheque book and ATM card.

To open post office savings account, one needs to fill the account opening form and also the internet banking form and complete the KYC formalities before making banking transactions. Once the PO savings account is opened, you can access it online or on mobile. The post office savings account app has been launched recently and one may register for it soon.

In an account with cheque book facility, the minimum balance of Rs 500 needs to be maintained else one can keep a minimum of Rs 50. As per the PO rules, a joint account can be opened by two or three adults. A single account can also be converted into a joint account and even a joint account can be converted to a single holding account. The account comes with the nomination facility which is available at the time of opening and also after opening of the account. Only one account can be opened in one post office and is you happen to shift to a different city, the account can be transferred from one post office to another.

If you have invested in the post office Monthly Income Scheme (MIS) and do not wish to withdraw the monthly interest amount, you can give standing instructions to the PO to divert the amount every month into the PO savings account. Additionally, you may provide standing instructions to the post office to divert the funds from saving account into the post office recurring deposit. In this manner, your monthly interest from MIS will get locked-in into the 5-year post office RD. Currently, the interest rate on PO recurring deposit is 7.2 per cent per annum compounded quarterly.

As per the India Post website, the daily ATM cash withdrawal limit is Rs 25,000 while the maximum cash withdrawal limit per transaction is Rs 10,000. There are no charges for transactions done at India Post ATMs for both financial and non-financial transactions. However, there is a limit of 5 financial transactions per day. In ATMs of other banks in a metro city, 3 transactions are free while in non-metro cities, 5 transactions are free for both financial and non-financial transactions. On exceeding the limit, there is a charge of Rs 20 plus tax.

The PO savings account can be opened in the name of minor and if the age is 10 years and above, the minor can open and operate the account. Once the minor attains the age of a major, the account needs to be converted to the major’s name.

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In the post office with core banking solutions (CBS), access to the account can be made through net banking or through post office mobile banking. Using PO net banking, one can make fund transfer from one POSB account to another POSB account. Also, one can make fund transfer from a savings account to the RD account or the PPF account.

Under Section 10(15)(i) of the Income Tax Act, 1961, interest income on Post Office Savings Bank Account is exempted from tax up to Rs 7,000 a year for a joint account and Rs 3,500 in the case of an individual account. Section 10 of the I-T Act talks about income which does not form part of total income i.e. exempted from tax. It means interest income above Rs 7,000 ( for a joint account) will have to be added to one’s total income for the financial year. Separately, there is Section 80TTA which allows a deduction up to Rs 10,000 ( for senior citizens it is Rs 50,000 under section 80TTB). Importantly, the tax treatment as an Exemption and as a Deduction is different from each other.