Imagine not having access to money for 10-12 days, especially at a time when you need to clear pending bills. And that too for no real fault of yours. Recently, Delhi-based Alok Sharma got caught in such a situation when his bank froze the only savings account he had over a small dispute for which he was not to blame. Another customer of the same bank had erroneously credited a small amount in Sharma’s account and had informed the bank about the mistake soon after.
“I had an insurance policy premium to pay and certain bills to settle, besides meeting my day-to-day expenditure. But I had all my savings in that account, I was left high and dry and was forced to borrow from my friends to take care of unavoidable expenditure,” says Sharma.
For Sharma the experience served a lesson—he now has two savings accounts in two different banks. Though Mint Money believes that you should not have more than two savings accounts, Sharma’s example poses a larger question: Should you limit all your banking transactions to one bank?
Limiting yourself to one bank has its advantages. To start with, it offers you the convenience of a one-stop shop for all your banking activities. Moreover, it may help cut your paperwork. For instance, if your demat account and savings account is with the same bank, you can link them for investments. Similarly, if you have a credit card with the same bank, you can make payments seamlessly.
Some banks even reward you for having multiple relationships. For instance, HDFC Bank Ltd provides a lifetime free credit card to customers who maintain an average quarterly balance of Rs 2 lakh in their savings account.
Moreover, a good relationship with your bank can help you bargain on the rates of a loan you may need to take. In fact, a lot of banks minimize paperwork for their customers seeking a loan from the bank.
You may lose during disputes: A single bank approach may work well till the time you do not have any dispute with the bank. The Contract Act, 1872, gives banks the right to lien the borrower’s savings against any debt taken from the bank. The right to lien empowers banks to keep the assets of a borrower till the time the debt is settled, and even sell the assets in case the borrower is unable to pay.
But a payment default can happen for no fault of yours; cases of fraud and erroneous billing are two such circumstances where this can happen.
“If there is a dispute between the bank and the customer, say, involving Rs 50,000, the bank has the power to freeze an equivalent amount of savings that the customer may be having with the bank,” says a senior official of a private sector bank, who did not want to be named.
Banks can exercise their right to lien on all kinds of assets, including savings deposits, fixed deposits and other securities such as shares. However, banks cannot impose a lien if the defaulter is an individual but the savings maintained is in joint name. “To impose a lien, the necessary condition is that accounts should be in the same name. So, if an individual has taken a loan and has defaulted but holds a fixed deposit jointly, the bank cannot lien,” says M.R. Umarji, chief adviser (legal), Indian Banks’ Association.
So, if you are in a situation where the bank settles your credit card bill from your savings deposit when there has been fraudulent billing on your card, you would be stuck. The only recourse in such cases is getting into a long-drawn legal battle with the bank.
You would be unable to diversify risk: Bank deposits are generally safer compared with other investment products, but keeping all deposits in one bank may put your money at risk at times. With banking frauds on the rise, you may end up losing your entire savings if you become a victim.
In case of a bank failure, though rare, you are again at the risk of losing your savings. However, in this case, you may be able to recover up to Rs 1 lakh, a sum insured by the Deposit Insurance and Credit Guarantee Corporation for each customer.
Bargain on interest rate may not work for you: You may bargain and get a loan at a rate that is 50 basis points lower than the rate for other bank customers, but it may still be higher than what other banks may be offering in the market. Similarly, for the convenience of it, you may open an fixed deposit in the bank you have a savings account with, neglecting the fact that you may get a higher rate in another bank.
What you should do?
Dealing with one bank may help you track all accounts at one go, but the disadvantages weigh heavily against the benefits such an approach offers. If you still want to keep your banking life simple, ensure you are careful about your transactions. Moreover, you need to keep a close watch on your account balance and payment routine.
However, this doesn’t mean you leave a trail of savings bank accounts as you change your jobs and open deposits with every next bank. Too many banks can add unwanted clutter in your life.
“Maintaining a relationship with more than two-three banks is cumbersome and is not advisable either. For normal banking activities, one should not deal with more than two-three banks and should shop around in case of specialized needs such as a loan or deposits,” says Gaurav Mashruwala, a Mumbai-based certified financial planner.
What is needed is a balanced approach, wherein your risks are diversified and your loan choice informed.