If you’re employed and receive a salary, you’re probably familiar with the convenience that salary accounts offer. Long gone are the days when you had to collect your hard-earned money in cash or wait for a salary cheque to clear. In the past, salaried individuals had to make frequent trips to the bank to deposit their earnings into a regular savings account and then go through the process of writing self-cheques to withdraw funds.
However, to simplify this procedure, many employers now deposit salaries directly into their employees’ bank accounts, giving rise to a distinct type of account known as a Salary Account. In this blog, we will explore the differences between salary account and savings account, the benefits of keeping them separate, and the advantages that this segregation can bring to your financial management.
What is a Savings Account?
A savings account is a versatile and widely popular bank account among individuals, serving as a reliable option for regular savings and withdrawals. Interest rates offered on such accounts may vary across different banks, typically ranging between 3% and 4% per annum. What sets it apart from many other banking products is its accessibility, as there are minimal requirements and restrictions for opening and operating a savings account. It serves as the first point of contact with the financial system for most people.
While maintaining an average minimum balance is usually necessary to avoid charges, some banks offer zero-balance savings accounts. Each savings account also comes with a daily cash withdrawal limit, which may differ for branch and ATM transactions. Depending on one’s specific needs, various types of savings accounts are available, including accounts for minors, Hindu Undivided Families (HUFs), joint accounts with spouses, or premium savings accounts that offer premium debit and credit card benefits.
What is a Salary Account?
A salary account serves as a dedicated savings account intended to receive an individual’s monthly income. Typically opened by companies through banks, these accounts facilitate salary payments to employees. While offering similar benefits and interest rates as regular savings accounts, some banks may provide slight variations in interest rates between saving and salary accounts.
A notable advantage of a salary account is the absence of a minimum balance requirement, alleviating concerns about maintaining a specific balance to avoid penalties. This sets it apart from regular savings accounts, which often require maintaining a minimum balance.
Key Benefits of Having a Separate Salary Account and Savings Account
1. Keeps Your Finances Organized
Maintaining separate salary and savings accounts is a valuable practice for effective money management. It enables you to keep a clear record of your finances, ensuring better control over your fixed and variable expenses. With the advent of modern banking services such as internet banking, mobile banking, and UPI, financial transactions have become more convenient than ever. By utilizing a savings account to pay for your utility bills and insurance premiums, you can streamline your expenses and maintain a systematic overview. Conversely, relying solely on your salary account might complicate expense tracking, making it challenging to monitor your financial outflows accurately.
2. Keep a Check on Your Expenses & Meet Your Savings Goals
Maintaining a dedicated account for your expenses can provide invaluable insights into your spending habits, enabling you to effortlessly track where your money is being allocated. Additionally, establishing a monthly budget allows you to transfer just the necessary funds from your primary salary account to your savings account, ensuring that you can comfortably cover your monthly expenditures. This approach effectively limits withdrawals from your salary account, while the remaining balance acts as a motivating factor to encourage consistent savings. In times of unforeseen emergencies, you can conveniently assess your account balance and swiftly transfer funds from your salary account using various digital platforms.
3. Increased Rewards and Benefits
Having separate salary and savings accounts can bring numerous advantages and perks when it comes to various transactions. These accounts often provide cashback and bonuses for different online transactions conducted through diverse payment methods. It’s important to remember that the rewards and benefits may differ based on the bank and the type of account you have.
For instance, your salary account’s debit card might give you 5% cashback when shopping at a specific electronics store, while your savings account could offer 1% cashback on entertainment expenses. By making wise choices when making purchases, you can save a significant amount of money each month, making it a cost-effective approach to effectively managing your finances.
It’s evident that separating your salary and savings accounts is a wise financial decision. By maintaining distinct accounts for these two purposes, you gain the ability to handle your finances more efficiently and steer clear of overspending. Additionally, it grants you a clearer picture of your monthly savings, serving as a source of motivation to further increase your savings. If you haven’t taken this step yet, we highly recommend opening separate salary and savings accounts today. Your future self will surely appreciate this thoughtful move!
Author: Naina Rajgopalan, Content Strategist at Freo Save