One should use his savings account to park only temporary surpluses or to use the account for routing investments and meeting expenditures
Got an appraisal this year? You should not let this additional amount just lie in your savings account earning meagre interest, which is also taxable.
Leaving a specific amount idle in your savings bank account for a long time, while may earn you some interest, also makes you miss the chance of generating higher returns if invested elsewhere. Apart from the obvious fact that savings account returns are lower than those from fixed deposits (FDs), liquid funds or ultra short-term debt funds, there is also the psychological angle of ‘out of sight, out of mind’ when it comes to not spending your savings balance on non-essentials just because its visible.
" By leaving money in your savings account goal-based funds that are redeemed for portfolio rebalancing purposes sometimes get splurged and never make their way back into the portfolio! Therefore, it’s a vital element of prudent personal budgeting to put away the cash that you won’t be needing access to in the immediate future into a liquid fund or a sweep FD that could be part of your emergency fund," said Aniruddha Bose, Chief Business Officer, FinEdge.
A savings account will typically pay you interest at the rate of 3-4 per cent per annum. For example Rs 1,000 saved for a year at 4 per cent will give you 40 as interest, which is a very low return. The math shows why you move surplus liquidity into savings and investment instruments that can provide better returns.
“While most banks usually offer 3-4% p.a. on their savings account balances, some private sector banks and small finance banks offer higher interest rates depending on the balances maintained in the savings account. However, the post-tax returns from one’s savings account, after factoring in the tax deduction available under Section 80TTA and Section 80TTB, would still be lower than the returns generated by various investment instruments. This is why one should use his savings account to park his temporary surpluses or to use the account for routing investments and meeting expenditures. Any investible surpluses should be invested in various investment instruments depending on one’s investment horizon, asset allocation strategy and risk appetite,” said Sahil Arora, Business Head, Unsecured Loans, Paisabazaar.
Here are some options you could consider
*Opt for a sweep-in facility
*You could also opt for a liquid mutual fund
*Short-term investors can opt for an FD
*There is always ELSS
*Arbitrage funds for high earners
*Risk-free investors can opt for government schemes
To know more about each poins briefly - Click on the link here - https://www.business-standard.com/finance/personal-finance/don-t-let-idle-cash-sit-in-a-savings-account-here-s-what-you-should-do-instead-123081100131_1.html