In these times of financial uncertainty, when markets are down and jobs scarce, cost-cutting has become the buzzword. Let alone companies, even individuals are looking to cut costs—by reducing outings, trips or lavish shopping. Your savings bank account is another place where you can look to cut costs—a lot of them.
Banks levy various charges on transactions—ranging from Rs25 to Rs1,000. And if you haven’t been careful about them, or are not aware of them, in all likelihood they have already burnt a hole in your pocket. But you can ensure you don’t repeat the mistakes—and save money. Otherwise, you will have to pay, literally.
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More accounts, more costs
While there is no limit to the number of accounts you can have, it could prove costly to maintain more than one.
Most banks have a minimum balance limit. So, if you have six accounts, you would have to maintain a balance in each of them. If you don’t, you will have to pay a penalty—Rs750 in most cases—and you will have to pay that every quarter. So, you would end up paying Rs3,000 in a year, that too for only one account. If you have more, do your own math to calculate the total losses. If you maintain the balance, you will earn only 3.5% against the 8% that you could earn from a public provident fund (PPF) or more through other savings instruments.
That’s not all. A few banks levy added transaction charges in case of non-maintenance of minimum balance.
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Moreover, if you do maintain the minimum balance somehow, but are not using the account, you will pay again because some banks charge an inoperative account fee.
By now, if you are convinced about closing accounts you don’t use or need, be prepared to pay account closing charges. However, it is better to pay up this one-time charge to avoid future losses. Also, this charge is levied only for accounts that are six months to a year old.
Check those cheques
Think twice before you write cheques. It may be better to use cash instead. Most banks do issue at least one cheque book (20-25 leaves) per quarter free of cost if you maintain a minimum balance. Otherwise, you pay up. If you want to use more cheque leaves, you will have to pay for each of those.
Also, make sure you have adequate funds before issuing a cheque because a bounced cheque is costly, too.
Reduce your bank visits
Too many transactions could cost you too, whether they are through ATMs or over the Internet, phone banking or at the branch. Only a limited number of banking transactions come free of cost per quarter for many banks.
In Standard Chartered, the first four transactions through any channel (Internet banking, phone banking, ATM or branches) per month are free. However, it charges as high as Rs75 per transaction subsequently.
Some banks even charge for repeated visits to the bank branch. If you pay your credit card bill through cash at a branch, you are fined.
Says a senior executive of a private sector bank: “We want to discourage customers from coming to the branch, hence the fine. Customers can pay the bill through an ATM transaction, which is free.” Banks also charge additional fees for banking at a non-base branch (i.e. a branch in another city).
Cut the clutter
Keeping fewer papers will not only help you save money, but also keep your documents file uncluttered. Be content with your quarterly account statements and monthly email statements. A physical monthly statement would cost you Rs100-200 a year. Banks even charge you for issuing interest and balance certificates in deposit accounts. A balance certificate gives the balance of a particular day and is used mostly for Visa purposes, while an interest certificate shows the total interest earned on bank deposits and is used at the time of filing income-tax returns. Usually one certificate is issued free of cost every year. Make sure you don’t lose it; you will have to pay for a new one.
Know what you are doing
Carelessness is no excuse, especially when you are banking. For instance, if you deposit cash in the cheque drop box, banks will fine you. Private banks charge Rs100, and if the deposit amount is over Rs500, the fine is Rs300. If you repeat instances of cash deposits in the cheque drop box, you would have to pay an additional Rs500.
Regeneration of the PIN number of ATMs or debit cards costs money at most banks. So, if you can’t remember your number, note it down in a safe place. Even replacement of cards attracts a fee.
Subscribing for bill payments, home banking, duplicate passbooks, cheque status, unarranged overdrafts, inter-branch transactions and cash delivery are only some of the services which are charged for. You also pay for every personalized service, such as SMS alerts, that you avail from your bank. So, make sure you really need these. And do remember that there is no such thing as free service.
The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by Outlook Money. Readers are requested to do their own research. Neither Mint nor Outlook Money will be responsible for any actions and outcomes based on information provided here.
You can transfer the financial rights of your insurance policy to others through assignment. This is different from nomination. In the latter, the policyholder appoints a person to whom the insurance company becomes liable to pay the claim amount upon the death of the policyholder. In assignment, the rights are transferred from the policyholder to the assignee. The nomination stays valid if the company is the assignee (for instance, if the policyholder takes a loan from the insurer).
If you want to achieve your financial goals, stick to these rules.
•Pay attention to price: Watch out for the price-earnings (PE) ratio.
•Sell at higher levels: Use exceptional gain periods to rebalance your portfolio.
•Buy on dips: Whenever there is a sharp reversal, buy strong stocks with low PE.
•Define your own stock-picking strategies: You could watch out for stocks with a market cap of Rs250 crore or more, reasonable trading volumes, operating profits, those that generate constant cash flow and have a return on equity above 10%.
The simplest way you can figure out a company’s earning quality is by looking at the difference between the cash flow from operations (CFO) and the net income.The cash flow statement records a company’s cash receipts and payments during a year. If a mature company has high income but poor CFO, it is a sign of its poor earning quality. A growing company might sell goods and services on credit to gain competitive advantage even at the cost of a negative CFO, but only in the short term. It will need a higher CFO in the long term to maintain its credit profile.
If you are planning to buy a pension plan, keep these in mind.
• Go for a pure pension policy. Avoid policies that have a mandatory life cover.
• Ask for a benefit illustration and look at the effective yield.
• Choose funds whose returns over the years are close to the benchmark returns.
• Don’t buy a policy that has capital guarantee.
• Start with a well-diversified equity portfolio, since you are planning for retirement. Check if your policy has an equity option.
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