To be sure, not all companies enforce such conditions. It is illegal for employers to deny salary to employees on these grounds, a lawyer, who did not wish to be identified, told Mint. Two of the salary accounts that the Delhi resident had opened earlier are no longer zero balance accounts as these were converted into regular savings accounts by the banks concerned. “Now, I have to maintain an average monthly balance (AMB) of ₹10,000 in each of those accounts," he said.
This is not a standalone case and highlights that maintaining an AMB is the biggest expense associated with a savings account.
Bangalore-based Sagar Saha has had to lock in nearly ₹1.3 lakh across four accounts to fulfil MAB requirements. In the current financial year, the total interest earned on all his savings accounts will exceed ₹10,000 and he will need to pay 30% tax on it (as per his tax slab). However, Saha has opened these accounts out of his own will for various reasons.
“One was opened to lock-in a high interest of 8.3% on a recurring deposit (RD), one was for superior digital banking services and the remaining two were opened as salary accounts," said the 29-year-old.
Though it is easy to open multiple bank accounts, maintaining all of them can be quite challenging.
Strings attached
You have to lock in a minimum sum to maintain AMB, and the more accounts you have, the more money you will have to keep in those accounts. This sum will over time lose value as the interest rate on savings accounts is a paltry 2.5-4%, which is way below the inflation rate.
Further, failing to maintain a minimum balance attracts a steep monthly penalty of 1.5-6% of the AMB (see table), which can eat into the net interest yield. Bank accounts with a RD or fixed deposit of over ₹1 lakh don’t require AMB. The AMB is calculated by adding each day’s closing balance and dividing it by the number of days in that month. This means that you will need to closely monitor statements of those accounts regularly to ensure that you are not slipping below the AMB limit. But imagine doing that with 5-6 accounts.
“Just depositing the minimum required amount as a one-time measure may not be enough as banks auto-debit certain service fees that may reduce your balance. This happened to me once when I didn’t notice that my bank deducted the annual debit card fee that pushed down my balance below the minimum threshold and I was penalised for non-maintenance of the account," said Vinit Iyer, co-founder, Wealth Creators Financial Advisors, a Sebi registered investment advisor.
Take note that banks do not notify customers in the event of a default on AMB or before any penalty is levied.
Many customers are also not aware that banks convert a zero balance salary account into a regular savings account (that mandates AMB) if salary is not credited in it for three to six consecutive months. Again, banks do not intimate customers before converting the account.
Multiple bank accounts also add to the tedious task of filing the income tax return (ITR) because you will still need to report these in the returns even if the total interest income is below the exemption limit of ₹10,000 “Now that taxpayers have access to AIS (Annual Information Statement), they can’t afford to miss this," said Rohit Shah, principal officer at Sebi-registered investment advisory firm GYR Financial Planners.
Further, one has to keep a record of all online banking login details that are unique to each account, track debit card expiry and renewal dates and ensure payments are made in time to prevent any of the accounts from becoming dormant.
One of the few upsides to having multiple accounts is that you can avail benefits on different debit card purchases. However, banks offer such perks typically to prime customers (those with a high monthly income). Do note that greater the rewards offered on a card, higher is its annual fee.
Saha has not given up his Citibank account for this reason. “I get cashbacks, rewards on almost all the purchases I make through my debit card. Further, it offers flat discounts on shopping with select merchants, such as Apple. For me, rewards on my Citibank account outweigh the service costs I have to pay on maintaining it," he said.
How much is too much
Financial advisors are of the opinion that keeping three bank accounts is more than sufficient. Shah said that an uncomplicated financial life is one of the fundamental prerequisites for financial freedom. “Closing those extra bank accounts is the easiest way to consolidate your financial life," he said.
Iyer concurred and added, “One can have a permanent account for all the incomes, one account for household expenses, which can be a joint account with your spouse, and a third one for personal expenses."
Most private banks allow you to close accounts online on their netbanking website after you have settled all dues but State Bank of India and some other banks will ask you to do this only at a physical branch.
