Prashant has been working for the past three years and has a salary account
through which he has been managing his income and expenses. He has not
managed to save much so far, but feels he is ready to do so. He thinks
that the interest he is earning on the balance in his savings account is a good place to start. Has Prashant understood the role of the savings bank account correctly and should he opt for this method of investing?
A savings bank account is the basic tool that Prashant will use to manage his financial life. He must not evaluate it as an investment product based on its return. Given his current financial situation, he does not have a lot of money in his savings bank account, and is unlikely to have idle money once he starts saving and investing. As such, a high interest rate on the balance in the account should not be a deciding factor for Prashant since his money will earn a much higher return if he invests it.
Using his salary account to make investments may cause operational difficulties if he changes his job. So, it is best for Prashant to have his own savings account, which he can select and operate according to his own convenience. He can route his investments through this account by transferring the portion of his income earmarked for investments to this account through a standing instruction. This will inculcate discipline in his spending, saving and investment activities.
Prashant must evaluate the facilities that the bank offers with his account. Selecting a bank that has a wide geographical presence will mean that he will have access to his account and services irrespective of his location. He must look for banks that provide a range of facilities, such as Internet banking, at-par cheques, electronic fund transfer services, and low balance maintenance. On the other hand, since this is the account he will use to make his investments, not for expenses, a wide ATM coverage or other facilities linked to the ATM or debit card may not be too relevant for him. So, he should list his current and future needs and look for an account that meets these most efficiently.
A savings bank account is the basic tool that Prashant will use to manage his financial life. He must not evaluate it as an investment product based on its return. Given his current financial situation, he does not have a lot of money in his savings bank account, and is unlikely to have idle money once he starts saving and investing. As such, a high interest rate on the balance in the account should not be a deciding factor for Prashant since his money will earn a much higher return if he invests it.
Using his salary account to make investments may cause operational difficulties if he changes his job. So, it is best for Prashant to have his own savings account, which he can select and operate according to his own convenience. He can route his investments through this account by transferring the portion of his income earmarked for investments to this account through a standing instruction. This will inculcate discipline in his spending, saving and investment activities.
Prashant must evaluate the facilities that the bank offers with his account. Selecting a bank that has a wide geographical presence will mean that he will have access to his account and services irrespective of his location. He must look for banks that provide a range of facilities, such as Internet banking, at-par cheques, electronic fund transfer services, and low balance maintenance. On the other hand, since this is the account he will use to make his investments, not for expenses, a wide ATM coverage or other facilities linked to the ATM or debit card may not be too relevant for him. So, he should list his current and future needs and look for an account that meets these most efficiently.
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