Dipankar Jakharia
I often come across many clients who have more than one bank accounts. Some will eventually have five-six saving accounts with the newest private bank in town, as if not having the high-end bank account is not having the latest status symbol of the town. Having more than two savings bank accounts is expensive and would make your financial life complicated. Keep it simple by having just two accounts if not one.
Having one bank account is ideal, but if you are a salaried individual, you may need to keep changing your bank with the arrangement of your employer. We suggest you keep two accounts—(1)permanent account for long-term transactions and (2)salary account, for daily cash flows which you can close whenever required. Here is how to manage the two accounts.
Permanent account
You need this account to keep track of your long-term financial transactions. For instance, your home loan’s equated monthly instalments (EMIs), systematic investment plans (SIPs) or for that matter income-tax reimbursements etc
The disadvantage of routing these payments through your salary account is that when you shift into a new job and your employer opens a new salary account, you would need to transfer all these transactions to the new account. While transferring your EMIs and SIPs may just demand physical labour and a lot of paperwork, changing your accounts while waiting for your income-tax reimbursements may even result a financial loss.
In case of loans, where the lender always collects post-dated cheques or direct debit/electronic clearing service mandate, the lender would charge a fee for changing the bank mandate. So, changing the bank mandate each time the employee changes his job, will be a costly affair.
However, you would need to transfer funds to your permanent account from your salary account regularly. But online banking has made that easy.
Salary account
With each shift in job, your employer would open a new account for you. Since this account is one that is short-term in most cases, we suggest you manage your daily cash flows through it.
Every month once your salary gets credited into the account, budget your monthly spends. Keep a buffer and transfer the rest to your permanent account. Ideally this account should be tracking your debit card and credit card spends.
For all practical purposes, this is your core account because this gets your salary and you can see all your cash flows. Since it is a zero balance account, it can also be used during an emergency.
Tips for couples
So, how do you manage two accounts in case you are married and want to plan your finances together? We suggest you make the same segregation.
However, your Permanent account should be joint. A joint account works on the principle of either or survivor, which means either of the spouses or whoever is the survivor owns the account. Not only can you access the account of your partner, but also claim ownership and bypass the legal grind in case the partner dies.
Why fewer accounts?
Having fewer accounts helps to avoid the clutter in your financial life. It helps you track and monitor your cash and more importantly it brings in a disciple in your income-expenditure matrix which is key to financial planning
With number of accounts, one also needs to look into various correspondences. Minimum balances have to be maintained in various accounts.
Salary account, with zero balance facility, have their own benefits, which you might lose once you change or leave the existing organization as the account ceases to be a salary account. A normal account otherwise require you to maintain a minimum balance failing which can cost you anything between Rs100 and Rs1,000 as penalty! On the other hand, closing a bank account is usually free of cost.
So it pays to keep things simple and smart with fewer accounts.
