What is the meaning of savings?
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Savings refer to a part of your income that is not spent, but set aside for future use. It typically gets deposited in a bank or is generally invested.
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A savings account is a type of financial instrument offered by a number of banks, where individuals can deposit a certain amount of funds and earn a small interest.
The primary goal of a savings account is to offer individuals a secured location to save the money they don't require/plan to spend in the immediate future. These accounts are usually popular due to their security, ease of use, dependability, and liquidity.
That said, let’s take a closer look at the different types of savings, the basics of a saving rate, and the various savings accounts available in India.
Savings refer to the money/portion of income that remains after an individual has settled all their financial obligations and expenses within a given time frame. These savings can be stored as cash or in low-risk equivalents like bank deposits, which typically offer low returns. Individuals with regular credit purchases and recurring EMI payments may generally find it challenging to save every month.
However, with a savings account, keeping aside a portion of your income becomes easy. You can consider it as easy as making little monthly investments. When times are rough, these savings can be used to cover expenses like a down payment, medical emergencies, repaying debts, purchasing a home, etc.
Let’s understand this with an example: Miss Singh receives ₹10,000 per month as her salary. Her expenses goes like:
Rent payment: ₹1,000
Car payment: ₹2,000
Student loan: ₹500
Groceries: ₹500
Utilities: ₹500
Mobile and Internet: ₹300
If you take a closer look, Ms Singh earns ₹10,000 monthly. Her monthly expenses add up to ₹4,800, thereby leaving her with ₹5,200 each month. If she saves a portion of this remaining amount, she can survive her problems in the event of an emergency.
However, if she fails to save any funds and spend more than ₹10,000 each month, this would mean she is living paycheck to paycheck. Needless to say, during the times of crisis, she will lack the funds to cover her bills, daily expenses, and emergency costs.
Note: When the money is deposited into their account, account holders receive competitive interest at a predetermined rate that is subject to periodic changes. This interest can be paid on any schedule (monthly, quarterly, biannually, or annually). Additionally, one of the most significant aspects of a savings account is that the entire amount/funds can be withdrawn and used as required. There is no withdrawal limit here.
Although banks offer a variety of savings accounts, you must be aware of the types that will work best for you and your modest, medium, or large savings habits. Listed below are 9 types of savings accounts that can help you make a better choice.
Instant Digital Savings Account
It only takes a few minutes to open one of these digital savings accounts. You can easily do it via a smartphone app or online banking. Nevertheless, if you do not finish off the complete KYC process within a certain time frame, the bank will put your account opening on hold.
Regular Savings Account
These accounts are quite easy to open and are available to everyone. However, a mandatory and complete KYC is required. Banks typically charge a yearly fee to maintain these accounts, which yield interest. Account holders must maintain a minimum average balance each month.
Joint Savings Account
This account is one of the most important ones because it facilitates account accessibility, and assures that the joint holder receives the account deposits, after an unfortunate accident or death of one of the account holders. These accounts are quite flexible. Any or all account holders have the option of operating the account as they like.
Women Savings Account
As the name goes, this type of savings account is only for women. They receive a special debit card, easy minimum balance restrictions, preferential loan and credit offers, etc. Account holders can also receive unrestricted ATM cash withdrawals, locker discounts, multi-city cheque books, etc. However, these benefits vary from bank to bank.
Zero Balance Account
There is no minimum average balance here that needs to be maintained monthly. The account holder can open a zero-balance account without depositing any amount. However, since there is no MAB requirement, the bank places certain restrictions. Some of these include a limit on the number of ATM withdrawals, debit card type, no chequebook facility, etc.
Children Savings Account
Parents or guardians open these accounts for youngsters under 18. These accounts teach them banking concepts and financial discipline right from the start. These accounts come with a deposit and expenditure limit. Additionally, parents must submit their identity proof along with a declaration to open this account.
Senior Citizens’ Savings Account
Senior savings accounts are for people over 60. Account holders receive numerous benefits like cheaper credit rates, excellent interest rates, dedicated relationship managers, and so much more. These types of accounts offer higher savings returns, outstanding banking convenience, and other benefits.
Family Savings Account
This is one of the best types of savings accounts. A single-family is eligible to open multiple accounts under one family ID. Upon doing this, they get the benefits of fixed deposits, savings accounts, recurring deposits, etc. These accounts cover spouses, parents, children, grandkids, in-laws, grandparents, etc., all together.
Salary Account
Salary accounts are specifically intended for salaried individuals who receive monthly salaries. Some of the benefits that account holders receive include free chequebooks, zero balance accounts, preferential loan interest rates, international debit cards, free personal accidental insurance, and so much more.
The amount you put away every month for future use (retirement fund, savings account, or some other investment) is known as your personal savings rate. You can easily determine this by using this formula:
Savings Rate (%) = (Monthly Savings / Monthly Income) × 100
For example, if you save ₹5,000 out of ₹50,000 (your monthly income), your savings rate is 10%; since ₹5,000 divided by ₹50,000 is 0.10, or 10%.
When determining your savings rate calculation, it is a common practice to use the gross income. However, you have the option to use both gross and net income for your calculations. Furthermore, don’t forget to compare your pre- and post-tax savings as well.
The terms savings and investment are usually considered to mean the same thing. Yet, these are often confusing concepts. Although both help you reach your financial goals, there is a slight difference. Here’s a tabular comparison.
Saving | Investing |
It is a portion of income set aside to support short-term financial needs. | This involves using the saved money to buy assets or other financial instruments that can generate income and higher returns. |
Perfect for small and short-term goals like gifts, emergencies, vacations, etc. | Ideal for long-term goals and can be reinvested. |
Immediate access to cash | You need to wait for a significant amount of time to access the funds |
Does not involve much risk | Involves high risk and does not guarantee any returns |
Possibility of earning an interest, but has low returns | Possibility of high wealth returns |
Does not need regular monitoring | Needs regular monitoring |
Highly liquid | Low liquidity |
In India, savings can be broadly categorised into different forms. Understanding these types is important while doing a saving rate calculation. This is because different savings methods can affect the amount of funds you set aside. Here are some common types of savings in India:
Bank Savings Accounts: This is the most common type of savings. Here, individuals can deposit money and earn interest on it.
Recurring Deposits (RDs): Here, a fixed amount is deposited regularly (monthly, quarterly, etc.) for a certain period. They accrue interest at a predetermined rate.
Fixed Deposits (FDs): These accounts offer better returns than regular savings accounts. FDs are referred to as the bulk sum that is deposited for a fixed tenure at a fixed interest rate.
Mutual Funds: This is a type of investment where funds are pooled from multiple investors to buy securities. Equity funds, debt funds, and hybrid Funds are all part of this category.
Public Provident Fund (PPF): The government-sponsored Public Provident Fund (PPF) is a long-term savings program that provides a fixed interest rate and tax advantages.
Employee Provident Fund (EPF): This is a retirement benefit scheme for salaried employees in India. Here, both the employer and employee put aside a portion of their salary for retirement.
National Savings Certificates (NSC): This is perfect for those looking to save money on taxes. It is a government-backed fixed-income investment program.
Post Office Savings Schemes: This offers several savings plans, such as the Post Office Savings Account, Monthly Income Scheme (MIS), etc.
Real Estate: You can also channel your savings into real estate investments. It is considered a great long-term and risk-free investment.
Gold: Indians have a long history of investing their savings in gold. Some of these assets include coins, jewellery, or sovereign gold bonds.
Summing up, saving money not only involves setting aside a portion of your income, but it is also about building a safe financial net that helps you face life’s uncertainties. Whether it is starting a business, buying your dream home, saving for a down payment, planning to open trading account for new investments, or having peace of mind; every rupee you save today will help you pursue your dreams tomorrow.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Savings refer to a part of your income that is not spent, but set aside for future use. It typically gets deposited in a bank or is generally invested.
Saving money offers incomparable financial security. It helps in achieving long-term goals, offers peace of mind, and ensures readiness for unfortunate circumstances, emergencies or unforeseen expenses.
Your savings rate is calculated by dividing the amount you save by your total income and then multiplying it by 100.
Generally, the ideal savings rate may vary from person to person, their expenses, cost of living, location, and lifestyle. However, an ideal recommendation is to save at least 20% of your income. This can ensure financial stability and future security in times of crisis.
Improving your savings rate is quite easy. All you need to do is cut off unnecessary expenses, work on increasing your income, automate your savings, and review and adjust your budget regularly.
It is generally advisable to review your savings rate quarterly or at least once a year. This is to ensure it aligns with your financial goals and changes in lifestyle.
Some of the common mistakes involved in saving rate calculation are:
Not accounting for all income sources
Excluding irregular expenses
Not having a clear understanding of net income and gross income.
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