India is such a large country with a wide economic class spectrum of people. On one side, there are plenty of people who have so much money that it requires multiple bank accounts to segregate the saving and investment channels, on the other, there are still thousands who don’t have even a single bank account.
Firstly, every citizen of India must have at least one functioning savings bank account. Now, the question comes up whether people with surplus incomes need multiple bank accounts? Well, there are advantages and disadvantages of maintaining multiple bank accounts, so let’s examine some of them.
Advantages of multiple bank accounts
It’s always wise to spread your savings and keep them in multiple accounts in different banks. While Indian banks are relatively insulated from outright bankruptcy, it is always better to spread your risk and park your hard-earned money with different banks.
Remember, if you want to open more than one account, then it is best advised to open one account in a reputed public sector bank and the other with a reputed private sector bank. While the service and customer care of a private bank may be better, a public sector bank offers you a safety since the bank is protected against outright bankruptcy by the government through various safety mechanisms.
Taking Advantage of Better Interest Rates
In addition to spreading your risk, another reason for holding multiple bank accounts could be to earn higher interest or access other favourable financial instruments and services that different banks might offer. Parking all your money into one account in a specific bank might deny you the opportunity to make some additional money by way of higher interest or better terms that may be offered by another bank.
Need -based Accounts
If you have surplus money, then it will need to be invested in a various financial instruments to spread risk and optimize returns. For example, it is possible that there may be one bank that may offer very attractive terms on gold deposits and if gold happens to be a part of your investment portfolio, then it may be wise to open a separate account with this particular bank, in order to avail the financial or service advantage.
Domestic versus International Account
If you have overseas businesses and you frequently need to travel to overseas locations or a single location, then it may be imperative for you to open additional account, preferable with a leading bank in that country or a leading multinational bank operating in multiple countries. Since there have been cases of overnight bankruptcy of some of the biggest names in banking, it will be prudent to open at least two overseas accounts with two different but leading banks, in order to spread your risk.
However, if you are based in India but travel overseas frequently, then holding your domestic account would be sufficient, as almost all leading banks in India have partner banks overseas and various services can be availed through those banks, as per RBI guidelines.
Disadvantages of Multiple Bank Accounts
May Not Be Necessary At All
Most leading banks today offer multiple investment and service options and it’s possible to access many of them from your bank itself rather than open multiple accounts for availing different services.
Maintaining Minimum Balance
Maintaining multiple accounts come at a cost. With each account, you need to maintain a minimum balance. And if money in your account falls below the minimum level required by the bank, they will debit your account for a certain charge. If you happen to maintain minimum balance in multiple accounts, this can add up to a significant loss that could well be avoided.
Multiple Accounts Can Lower Your Income
This can be tricky. Some banks reward you for maintaining a higher savings balance, therefore by spreading your money with various accounts in different banks, may just deny yourself a higher income that you could have had if all your money were parked in this specific account.
Then again, various banks may offer schemes from time to time that may be better than other banks. In such situations, you will need to keep a close track of various options available and shift your money to the account that offers you the best returns. Now managing multiple accounts is not easy unless you are very well-organized and have the requisite time to keep track of various schemes that different banks offer from time to time.
Multiple Accounts Mean Multiple Cards
Maintaining multiple accounts means maintaining multiple debit/credit cards along with multiple cheque books. In case of loss due to theft or misplacement, the bank may charge you additional fee for replacement, all adding to your cost.
Security Could Get Compromised
There are two major threats to maintaining multiple accounts. One, there is every possibility of someone accessing your account details and password/PIN and taking advantage of it. The more accounts you maintain, the greater the chance that someday you will make a slip and your account details could become accessible to some third party.
The other threat is that of a dormant account. Very often, when we maintain multiple accounts, some account(s) might remain inactive or dormant for long periods. We tend to ignore these for long periods though they might have a certain amount parked in it, but since they have not been used for quite some time, it could come into a fraudster’s notice. They look for such accounts because any unauthorized access to these accounts attract little attention and gives them the necessary time to cover their tracks. Several account holders are known to have fallen victim to this.
Calculating Tax Returns Can Be Cumbersome
Each year, while filing tax returns, you will need to compute the income from respective accounts and then calculate the tax exemption before arriving at your final tax amount payable. This can be a cumbersome process that many may find tedious to undergo each year.
So What’s ‘The Best Solution’?
The best solution is to maintain two accounts and not more, with two separate banks. Preferable, one should be with a reputed public sector bank, while the other could be a reputed private sector bank. This will give you the right balance of spreading your risk, getting good service and the advantage of optimizing returns on your money. Besides, it is easier to maintain better relations with two banks, since each bank will have a higher level of your money parked with them and therefore, you could become a priority customer for the bank which would not have been possible with multiple accounts.
Remember, it is wise to spread your risk but going any wider is not always the best idea.