Is having multiple savings accounts a good idea? See this

By Priyadarshini Maji, The Financial Express

With frequent job changes, most working people end up having multiple savings accounts. Many people also like having multiple bank accounts due to one or another reason. Having multiple accounts work if you are a businessman and often make huge transactions.

For a salaried person, however, experts suggest having multiple bank accounts hardly makes sense. Particularly with the increased banking transactions, maintenance charges, minimum balance along with the ineffective use of cash, is it such a good idea to have multiple bank accounts?

Here are some of the reasons why you need to eliminate your surplus bank accounts:

Minimum Balance - One of the most important reasons for not having multiple savings account is because of maintaining a minimum average balance. Generally, in savings accounts, you are required to maintain a minimum monthly balance, which varies from bank to bank. The minimum monthly balance could be as high as Rs 25,000 for some banks, while for others, it ranges between Rs 5,000 to Rs 10,000.

Hence, the more accounts you have, the more you have to maintain as minimum average balance in the accounts. For instance, if you have 5 bank accounts, with the required minimum balance ranging from Rs 5,000-10,000, you will be required to maintain around Rs 25,000- Rs 50,000 as the minimum balance.

Zero balance account

You can steer clear of maintaining minimum balance if you convert your account to zero balance accounts. However, note that, once you change your job and create a new salary account, even your zero-balance salary accounts automatically get converted into regular savings accounts. Then these accounts will also fall under the need to minimum average balance maintenance.

For most banks, the procedure to change your savings bank account to zero balance account, need to be done by visiting the bank branch, and with multiple bank accounts, you have to visit all bank branches and more paperwork.

Unproductive use Of cash

With maintaining minimum average balance in several accounts means, you also lose the opportunity to lock the same money in more lucrative investment instruments. For instance, investment instruments such as mutual funds, fixed deposits, comparatively will generate higher returns. Thus, as minimum balance in a savings account, your money will keep on generating lower returns, which can be as low as 3-4 per cent.

Other Charges

Savings accounts are not generally free, if not used regularly or within a certain period of time. For instance, one needs to pay minimal charges towards certain services such as debit cards, ATM use, SMS alerts, etc. Also, in some cases, service charges for non-maintenance of monthly average balance can go up to Rs 600 - Rs 1,000. Thus, the more accounts you have, the more fees you have to pay from time to time. Besides, with any irregularity in the account, your relationship with the respective bank/banks might also get affected, which in turn can affect your credit score also.

Difficulty in Tax Filing

With too many accounts as such with various interest and income-generating source, your paperwork also increases, which can be chaotic especially during tax filing. Tax experts suggest, for people with many accounts, gathering information and statements from too many accounts at the time of filing I-T returns becomes a cumbersome job. Hence, it is better to streamline your finances into one or two accounts.