Choose from various types of Bank Accounts

Bank account

“Do not save what is left after spending; instead spend what is left after saving.”
Warren Buffett

If you have to maximize your returns from a bank, manage money and minimize fees then it is wise to put money into the best account and use the right tools for spending and savings. So, here’s a list of different types of bank accounts which will help you in choosing the best one that fits your needs and circumstances.

1. Savings Bank Account

A Savings Account is a deposit account facility provided by the bank wherein you can deposit your savings. Through banking, you can save money easily and offers facilities to make optimum use of cash. The interest rate provided by the savings bank account is anywhere between 3-4%. Read More: All about Saving’s Bank Account

Advantages:

  • Instead of keeping your money in the checking account, it is more beneficial if you keep your unnecessary funds in a savings account where your money can grow.
  • Liquidity of the savings account and one can withdraw cash during banking hours.
  • Easy and quick access to funds in case of an emergency.

Disadvantages:

  • When there is inflation the account earns no real returns.
  • Balance, including interests in an account above Rs 1 lakh is exposed to the risk of a bank folding up.
  • Also, it doesn’t have any tax advantages and is taxable under the head ‘Income from other sources.

Alternative
Mutual Funds can be the best option to save your income from inflation. Mutual Funds is an investment vehicle that pools money from several investors and invests that money to buy various securities in the market such as stocks, bonds, short-term debt etc. Mutual Funds provide returns between 9-15% or more, which is way more than Savings Bank Account and helps you to face inflation. Read More: Top Mutual Funds that have provide >15% returns.

2. Current Account

The firm, companies, and businessmen who generally have large and regular transactions use current accounts. The current account includes Deposits, Withdrawals, and Contra Transactions. The current account is also called a Demand Deposit Account.

Advantages:

  • A current account is meant for daily transactions. And can handle large volumes of Receipts/Payments.
  • Overdraw Facility – This facility is provided with a current account when an account holder draws more money than what the account holds.
  • A current account is a zero-account (you don’t have to maintain a minimum balance for it.) is generally associated with huge transactions on a regular basis.
  • Direct payment to creditors by issuing of Cheques, Pay- orders, or demand drafts.
    You can do unlimited transactions and withdrawals.

Disadvantages:

  • Minimum balance in maintaining a current account, which is Rs.25,000 is much higher as compared to a savings account.
  • Because of the fluidity that these accounts offer, they don’t earn any interest.
  • Limit on the amount of money that can be withdrawn in a day.

Alternative
Invest your money and do not earn returns? Then why choose Current Account when you can invest the same money Rs.25,000 and receive interest of 12-15% on your money.
You can invest as low as Rs. 500 a month and start a SIP(Systematic Investment Plan) with Mutual Funds. Explore: SIPs in Mutual Funds
On MyWay Wealth you can withdraw your Funds anytime. Hence it provides higher liquidity and you control on your money anytime.

3. Cash Credit Account

A borrower can withdraw money from a bank even if he doesn’t have a credit balance but the borrowing limit is fixed by commercial banks. This is an important source for business to raise its short-term finance.
As this facility is bound by a limit specified by bank i.e. the borrowing it is determined based on the drawing power of the borrower.

Advantages:

  • The flexibility of deposit and withdrawal
  • Cash credits are easily arranged at a short notice by bankers.
  • Interest tax is deductible hence reducing the overall tax burden.
  • Interest only on the amount utilized- as the lender charges interest on the amount withdrawn and not on the sanctioned amount.

Disadvantages:

  • Cash Credits cannot be used for long term purposes as it is given for a maximum period of 12 months and it has to be renewed when it gets expired.
  • More compliance and checks- As the borrower is under the obligation that he must
  • Present the quarterly/ semi-annually reports with the bank.

Alternative

  • MyWay Wealth provides Mutual Funds that are based on your financial goals, investment horizon, and risk appetite. So if your financial goals are for long term (>5 years) you can easily invest in Equity Mutual Funds.
  • To invest in Mutual Funds on MyWay Wealth all you need to do is complete the paperless KYC (Know Your Customer) process, which hardly takes 5 mins, and you are all set to start your investment journey.

So hope this article gave you a fair idea of all the traditional Bank Accounts and how Mutual Funds are a better option than them. And MyWay Wealth is India’s most trusted app for Direct Plan Mutual Funds. It gives you access to a wide range of tailor-made mutual funds that suit your financial position and all this for No Commission and No Fees.

Hurry, Start investing today on MyWay Wealth!

5 Reasons people should NOT opt out of Term Insurance

Term insurance

Do you know that there are so many different kinds of Life Insurance? You have your Unit linked insurance plan (ULIP) which gives you insurance along with an investment opportunity. There are these very famous endowment plans that promise insurance along with savings. And many more like Money back, Child’s Plan, Retirement Plans, etc. Term insurance, also known as “pure risk cover” is one such variant of Life insurance policy where the dependents get a sum assured by the insurer, redeemable on the death of the policyholder during the tenure of the policy. It is quite simple and extremely valuable. However, people tend to perceive it as a costly expense compared to other insurance plans, as there are no returns. Here are 5 reasons why people opt out of term insurance and shouldn’t do so:

#1: I don’t get my money back/ Give my money back!

Insurance is bought for all the wrong reasons like greed, taxes, fear, etc but the only real reason to buy insurance is security. Put an endowment plan under the microscope and see it serves the purpose for which you pay the premium. Can you justify it? No, because it is a product that dances around security instead of actually providing it. Term insurance is very simple in terms of providing absolute security. You pay a price to ensure your dependents of any troubles after you die. It is not a tool of investment, but a guarantee to receive a fixed amount if something happened to you. If you are hungry for returns the most ideal option is an investment in Mutual Funds. But term insurance will return a fixed lump sum in the event of your death.

# 2: It’s very expensive!

When you check on the amount a person normally pays for an insurance policy compared against the average term insurance premium will show you the truth. Term insurance is lower in terms of premium as compared to endowment plans and Unit-linked plans. To many people, it seems like a costly affair, but what you must remember is the pot of gold in the end instead of looking solely at the current costs to bear.

# 3: Other schemes have better benefits!

The term insurance simply acts as a financial safeguard for the family, it is affordable, receives tax deduction under Section 80C and the best of all is the value over cost. The premium you pay to maintain the policy adds up to peanuts compared to the real value of the policy. A popular diversion which leads to losing the essential aim of insurance is the fancy add-ons that other schemes provide. Don’t mix your investment with your insurance!

# 4: I have more important things!

People often opt out of paying their term insurance because they find it plausible to spend it on things like education, marriage, medical bills, etc. But you just have to ask yourself what happens when you die? Who will take care of it all? It doesn’t mean you shouldn’t save up for such things, but in order to avoid unloading these burdens on your loved ones, it is recommended to take term insurance.

# 5: It’s a luxury, not a need!

There is a false impression going around that term insurance is a luxury and it is not a necessity for everyone. You spend time and money every single day to increase their security in terms of health, financials, etc. So it seems fitting to protect the ones you love from any troubles when you’re not around. It is for everyone who wants to keep their dependents safe.

#EXTRA: I haven’t heard of it!

Why do you never hear of advertisements selling term insurance? Think of it this way. You are offered two different cakes. One is a colorful confetti cake with sprinkles and buttercream which is a real treat to your eyes; on the other end, you have a simple chocolate cake with a humble glaze. The confetti cakes seem to have a lot to offer but when you bite into it you find it is just a simple sponge with a whole mess of toppings and nothing special. While the chocolate cake is rich in quality.
ReturnsSource: Unsplash

However, term insurance is like the chocolate cake, it is pure to its purpose and nothing more. There are no fancy toppings to it like other schemes. While your endowment plans are like the confetti cake. The fancy things will have you pay more for nothing, while the term insurance delivers as promised.

Ignorance is never bliss in our world. It is always good to understand what you want before you lock into any insurance scheme, verify the big picture of every option you have. Use an app like MyWay Wealth which helps you set up term insurance.

MyWay app

MyWay app

MyWay app

MyWay app

Be sure before you insure!

3 Musketeers of Savings

3 Musketeers of Savings
Source: Unsplash

India is known for its uncompromising savings culture. We Indians have the natural tendency to spend less and save for our future requirements. In a developing country such as ours, it is in the government’s interest to promote the habit of savings in every way possible. There are many ways for a person to save his money in a bank. Let’s compare three familiar channels of savings.

The first musketeer is the Savings Bank Account.

To many, it needs no definition for the simple reason that it is suitable for everyone who deals with money in their life. This savings bank account is opened in a bank to hold money and maintain it. There are several other functions that the account holder can explore. Some well-known functions include checkbook, debit card, overdraft, etc. One of the most inviting features of this particular type of account is its high liquidity allowing the account holder can access his money whenever he needs. He can withdraw using the ATM card or transfer a lump sum using NEFT or RTGS.

Now with digitization, you can access your savings account with an app on your phone; you can even just hold your money in a payment wallet.

The second popular musketeer of saving is dear old Bank Fixed Deposit.

Most people use this account to store the stagnant cash until the need arises for things like weddings, education, etc. The vital feature of this account is the safety of the money for a long period of time. The reward for fixing it for a specified term is the rate of interest generated, which is relatively higher than that of a savings account. This is a suitable instrument for those who want to earn returns at a minimum risk.

Banks The interest rate for FD What Rs. 10000 will grow into in 5 years
IDFC Bank 8.25 15043
AU Small Finance Bank 8.00 14859
DCB Bank 7.75 14678
Lakshmi Vilas Bank 7.75 14678
RBL Bank 7.60 14571

But even with all that security to the money, there is the least amount of returns earned when compared to a mutual fund that gives about 12-20% in returns. With Mutual Funds, you can make the lump sum on equity, debt or hybrid schemes. With an app like MyWay Wealth you can opt to save for a purpose (education, wedding, pension, etc.)

The third musketeer is the Bank Recurring Deposit. An account opened with the intention of depositing a fixed amount of money regularly for a fixed tenure. This encourages saving as a compulsion and brings no inconvenience to the holder. It is suitable for the conservative savers who seek assured returns with just small deposits compared to a lump sum in order to meet their medium-term goals.

 

Banks Interest Rate on RD for 5 years
Allahabad Bank 6.50
ICICI Bank 6.50
Yes Bank 6.75
State Bank of India 6.85
Lakshmi Vilas Bank 7.00

*Rates as of October 2018

Recurring deposits are a great way to save up for future prospects, plus it instills a sense of discipline in an individual’s personal finance without much hassle. But there is a way to do this in the vicinity of your home or office and get much better returns. You can choose to invest in Mutual Funds through Systematic Investment Planning (SIP) that offer equity-linked based returns.

Who is the Third Musketeer?

Are these three the only ways to save? Or is there something better? Our third musketeer is Mutual Funds, a way to invest and save with all the benefits of these accounts mentioned above. To understand further, let us review all the similar features that the musketeers share. The most important feature is that it lacks a productive level of interest-earning potential as compared to equity-linked instruments. But people choose to opt for these due to the safety of funds. However, you can now choose to have the best of both security and high returns through Mutual Funds.

Eligibility and Return

The eligibility to hold a savings account is that he/she must be a resident of India. In the case of Fixed Deposits and Recurring Deposit is that he/she must be a resident of India and have a Savings Bank account. The accounts can be opened in any nationalized, private-sector or foreign bank in all the three cases. But if you look at Mutual Funds, all you need to do is complete the KYC (Know Your Customer). There are no safeguards against inflation for all three accounts. With Mutual Funds on the other hand, since the schemes are all linked to the market, the returns are guarded against inflation.

How are the Musketeers different?

There are several distinctions between the three musketeers too. These differences help a user to decide on which account is most suitable for him to save. The distinctions include the entry for a Fixed Deposit and Recurring Deposit, which is restricted to people above 18 years, whereas there is no age specified for opening a Savings Account or trading in Mutual Funds. The capital amount deposited in a Savings Account is not completely safe as compared to deposits in Fixed and Recurring accounts. Savings accounts have high liquidity as opposed to fixed deposits and recurring deposits that have a lock-in but allows withdrawals on the payment of a penalty.

The minimum balance in a savings account depends on the type of account; in a fixed deposit, it is Rs. 1000 and has no maximum limit. Any deposit above 15 lakhs qualifies for a special interest rate. The minimum balance in a recurring account is Rs. 100. The tenure for a savings account is not fixed and can be used as long as it is active. The term deposits are currently offered up to 10 years. The recurring deposits are offered from 6 months to 10 years.

The interest rate is based on the daily balance in the account. The variable interest rate is applicable to the balance above 1 lakh and fixed rate is compounded half yearly up to 1 lakh with a minimum of 3.5% at the moment. The interest rate of the term deposit and recurring deposit depends on the tenure. It currently goes from 5.75% to 6.5% for term deposit and 6.35% to 6.5% for recurring deposit. Senior citizens qualify for special interest rates, which is usually 6.25-8.00%

Taxability

The interest earned in a savings account is exempted from tax up to Rs. 10000 under Section 80TTA since 2012-2013. Any interest above this limit is taxed accordingly under ‘income from other sources’, however, there is no Tax Deducted at Source (TDS). The interest earned in a fixed deposit and recurring deposit, above Rs 10000 is taxable at the rate of 10% through TDS. This limit has been pushed up to Rs. 50000 for senior citizens. In the case of fixed deposits, the tax is imposed on the amount when it is deemed to be received, whereas for a recurring deposit the tax is imposed on interest received on maturity.

In recent times we have grown to accustom a saving habit no matter what profile we fit into. Be it a minor or adult, businessman or house maker, student or teacher, grandfather or daughter; everyone is encouraged by the government and society to be ready for future possibilities by saving up in different ways. These three accounts are the most popular and it allows the holders to gain a certain amount of returns. But it is not enough. In my opinion, these three instruments are great for “storing” instead of “saving”.

The truly best way to build wealth in long term is to invest in Mutual Funds that give to the safety of your money along with higher returns of the above three instruments. With digitization flooding this industry you can now invest using your phone through the MyWay Wealth App. You get all the perks of the three instruments and a whole lot more:

  1. Mutual funds earn a high amount of returns.
  2. Investment options include lump sum and SIP.
  3. There is easy accessibility of the amount.
  4. The risk involved is diversified.
  5. There is protection against inflation.
  6. Process for the purchase of Mutual Funds is easy.
  7. Tax benefits of up to Rs. 1.5 lakh per year (under Section 80C), by investing in ELSS Mutual Funds
  8. Easy tracking of investment and regular alerts with the MyWay Wealth app.
  9. Save for a goal with the MyWay Wealth app (education, wedding, retirement, etc)

Invest in Direct Mutual Funds and Term Insurance to Secure your Child’s Education

Most of you would have heard these words of wisdom from Nelson Mandela:

Education is the most powerful weapon which you can use to change the world.

— Nelson Mandela

But the rising costs of education (at all levels from elementary school to college higher education) have made it harder to get quality education for our kid(s). Quoting Arne Duncan (who was Secretary of Education for the USA):

State governments generate less revenue in a recession. As state leaders struggle to make up for lost revenue, legislatures tend to cut funding for higher education. Colleges, in turn, answer these funding cuts with tuition hikes.

— Arne Duncan

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