You may have accounts opened with the help of your parents when you first entered the work force or before getting an income. Some may have opened a savings account just because a banker asked them to open one. But do you still use all of them and how many is too many?
Restrict yourself to three savings accounts
Before opening a bank account, find the purpose of the savings account. You need to label each bank account with a purpose. The three purposes a savings account can fulfil include income, expenses and investment. Once you label each of the savings accounts, use it for the assigned needs.
For instance, the income account will see all the money flow in the form of salary and dividends. The savings account for expenses is where you need to park the amount that you will spend on grocery, rent and to pay bills.
The third account is where you move the money for savings and investments on a monthly basis. If you are disciplined, you can stick to two bank accounts—your income and investment can be one account and the money for all your expenses can be parked in a separate account.
Too many accounts can eat into your savings
Savings accounts are not for free. There is usually a cost attached to the service. For instance, you will have to maintain an average monthly balance, failing which you will have to pay a penalty. “Multiple savings accounts come with associated costs in the form of annual debit card charges and the opportunity cost of maintaining monthly average balance in each account for lower returns," said Sahil Arora, head of payment products at Paisabazaar.com, a marketplace for loans and credit cards. Another issue is the amount of money you keep locked-in in your accounts.
“The more accounts you hold, the more money you keep locked in the accounts as minimum balance requirements," said Navin Chandani, chief business development officer of Bankbazaar.com, online market place for banking and investment products. “This requirement ranges from ₹5,000 to ₹10,000. So in case you have five savings accounts, anything from ₹25,000 to ₹50,000 would remain in these accounts, giving you returns at the rate of 3-4% on an annual basis," he added. Instead of leaving the money idle, you can invest in other financial instruments.
Consider a joint account
Whether you are married or unmarried, there is the usual question of whether you should have joint account with your parents and spouse? The answer depends on your relationship with your family members as well as the financial behaviour of each individual account holder. “If all the holders have a good financial understanding, trust and joint goals, it makes sense to be co-holders. Also, it is better to opt for either or any one survivor over joint option," said Deepali Sen, founder of Srujan Financial Advisers LLP. If you are working towards the same investment goal, such as your child’s education or retirement, you can opt for a joint account. If the financial behaviour is completely opposite and creates distress, it would be better to keep the accounts separate.
Money forgotten is money lost
There could be situation where you don’t remember a saving account opened 10-15 years ago. In case you have money left in the account, a forgotten bank account is equal to money lost. Also, since the bank will deduct money for their services such as debit card charges and other bank charges, you will actually see the money depleting. Also your nominee will face inconvenience due to dormant accounts. “As an inheritor, it is inconvenient to go through and settle finances of the 6-7 bank accounts that you are inheriting. The banks take time to arrive at the rightful heir and you will go through a lot of inconvenience," said Shyam Sunder, founder of Bengaluru based Peakalpha Investment Services Private Ltd.
Hence, even if the extra bank accounts that you have at bay do not currently charge you that extra dime, it is only safer to close them down and clean up your finances.