Bank accounts nowadays are available with tons of features as they constantly innovate their products to attract new customers while retaining their existing ones. That said, the primary purpose of a savings account is to connect its customer with the banking world, to allow them to keep their money safe and earn some interest on it. Most banks have savings accounts with certain distinguishing features – which often make people open multiple savings accounts with different banks so that they can avail the benefits attached to each account.
But, is it a good idea to hold multiple bank accounts? Well, there are both pros and cons to it. Read on as we discuss both the aspects to help you make informed financial decisions.
Benefits Of Having Multiple Bank Accounts
Depending on your requirement, you can opt for different types of savings accounts with unique features. For example, some banks offer a higher rate of interest on their savings accounts which make them good alternatives to fixed deposits that are relatively illiquid and whose returns are fully taxable.
Not just that, most banks offer premium debit cards with certain special features like a higher cash withdrawal limit, zero transaction cost, accelerated reward points gathering, exclusive cashback on eligible transactions and even privileges like free lounge accesses at airports. You may not get all types of facilities in a single savings account, so if you are looking for various features, having multiple savings accounts in different banks can be useful to you. Also, banks usually restrict the frequency of cash withdrawals and the maximum withdrawal limit on a debit card. So, if you have different bank accounts, you can use the debit card of another bank if the withdrawal limit on a particular card gets exhausted.
More importantly, you can segregate your savings for different financial goals by having multiple savings accounts. For example, you can maintain your emergency fund in one account while you can use other accounts to raise money for your different investments, save for your regular expenses, etc. You can also have a separate account to maintain a fund for all your major EMIs like home loan and car loan repayments. Spreading out your savings will ensure money kept for a specific purpose isn’t used to fund another requirement and may help you meet all your targets in a disciplined manner.
One of the other key benefits of having multiple bank accounts is that you can invest in FDs in different banks while keeping the FD amount below Rs. 1 lakh. Each depositor in a bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India, of up to Rs. 1 lakh for the principal and interest against the liquidation or cancellation of a bank’s license. So, by having multiple bank accounts and keeping FDs with different banks, you can ensure the safety of your funds.
Drawbacks Of Maintaining Multiple Bank Accounts
Except for no-frills accounts, most bank account variants require a certain minimum balance to be maintained to avoid paying a penalty. So, if you plan to have multiple bank accounts, you may need to keep the minimum balance in each account as per their requirements making it a significant amount in total that would remain illiquid and idle in such accounts.
Managing multiple bank accounts can be challenging too. If you use net banking or mobile application for each account, there are chances that you may often forget the login IDs and passwords. To avoid the confusion, people often make the mistake of writing down their login credentials which, in turn, increases the risk of them getting stolen.
The facilities with bank accounts have some associated costs as well. For example, high-end debit cards usually carry an annual fee. So if you maintain several bank accounts, you may need to shell out a substantial amount in charges collectively.
That being said, the most challenging part of maintaining multiple bank account is faced while filing Income Tax Returns. You may fail to mention income details in all your accounts which might lead to a discrepancy in your tax returns.
So, What Should You Do?
There’s no “one-size-fits-all” answer to this question. While maintaining multiple bank accounts may work in your favour in availing a wide range of benefits, a longstanding relationship with your chosen bank will ensure you get the best loan and credit card offers from that bank. So, if you’re satisfied with the extent of services offered by a bank, you may not want to have too many accounts in multiple banks. This will also make it easier to report your financials during ITR filing season. On the other hand, if you are looking for greater flexibility, a wider span of services, and don’t mind maintaining the minimum balance, you can have multiple bank accounts. Many feel doing so helps them to meet all their financial goals effectively. So, make a pragmatic decision based on your financial requirements after you’ve factored in the associated costs among other major considerations discussed above.
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.