What is the difference between salary account and savings account?

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“A healthy banking system is one of the vital parts of a nation’s foundation” Hendrith Smith. 

Although it took me a forced reading of Dan Brown's Da Vinci Code to understand that the Templar Knights laid the foundations for the modern banking system in the 12th century, a study of salary vs. savings accounts was entirely out of my league.

What is a salary account?

It is the account opened by an employing organization with a registered banking institution to facilitate a seamless salary disbursal system for its employees. It’s done in return for a nominal fee, to pay the bank for the account’s maintenance.

The account comes with quite a few benefits of its own. However, before we dive into the merits of having a salary account, let’s clear out the difference between a salary account and a savings account.

First, let's understand what goes around in opening a savings account.

A savings account is an interest-serving deposit account held at a bank or any financial institution. Though these accounts typically pay an acceptable interest rate, it’s their safety and reliability that make them a great option for parking cash. 

How do savings accounts work?

Savings and other deposit accounts are important sources of funds that financial institutions use to give out loans. For that reason, you can find savings accounts at virtually every bank, whether they are traditional brick-and-mortar institutions or operate exclusively online. In addition, you can find savings accounts at some investment and brokerage firms as well.

  • Savings accounts charge interest rates that vary - except for promotions promising a fixed rate until a certain date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate, the more likely it is to fluctuate.
  • Some savings accounts require a minimum balance to avoid monthly fees or earn the highest published rate, while others have no balance prerequisite.

Pros of opening a savings account:

  • Fast and easy to set up and move money to and from
  • Can be easily linked to your primary current account
  • Up to your full balance can be withdrawn at any time

Cons of opening a savings account:

  • Pays less interest than you can earn with certificates of deposit, Treasury bills, or investments
  • Easy access can make frequent withdrawals appealing
  • Some savings accounts require minimum balances

It brings us back to the question – Is there any difference between a salary account and savings account? Of the two, which is the better? 

Salary Account vs. Savings Account

 

Salary Account

Savings Account

Who can open

Employee

Everyone

Purpose of account

To Pay Salary

For Saving Money

Minimum Balance Requirement

No Minimum Balance Required

Minimum Balance Required

Interest Rates

Current average - 

3% p.a - 3.50% p.a 

2.70% p.a. to 6.50% p.a.*

(*https://www.bankbazaar.com/savings-account/banks-with-highest-savings-account-interest-rates-in-india.html)

Conversion

If salary is not credited for 3 months, then salary account turns into a savings account

If the bank allows then a savings account can convert into a salary account

Debit Card

Provided

Provided

Other Services

Mobile Banking, Net Banking, Cash Withdraw at any ATMs, Free SMS Alerts, Passbook facility, Cheque Book Facility, Fund Transfer Via NEFT/RTGS, etc.

Mobile Banking, Net Banking, Cash Withdraw at any ATMs, Free SMS Alerts, Passbook facility, Cheque Book Facility, Fund Transfer Via NEFT/RTGS, etc.

 

Conclusion:

The recent digital boost has changed a lot of the services rendered by banks from the physical to online platforms. Thus, besides the good old traditional banking system that we see around, a new banking system is budding in the form of Neobanks which not only have an online presence but rather an online-only presence.

A good example would be Fi which targets salaried millennials who might not have the time to schedule bank visits. A money management app, Fi offers 2.65% annual interest on its digital savings account. It also has an AI-based feature called FIT rules that allows users to automate their savings by setting certain checks based on popular events like cricket matches. While it took me a book to understand the basics, I hope this piece serves the purpose of clarifying the difference between salary account and savings account.

FAQ

What is the advantage of a salary account?

Answer: - 

  • No minimum balance is required for a salary account
  • There is no debit card fee and free net banking, mobile banking with multiple transactions, etc. cashback and discounts on shopping using salary debit card
  • Overdraft 5 times on your net salary basis

Who can open a salary savings account?

Answer: - The only salaried person can open a salary savings account.

Can we convert a regular savings account into a salary savings account?

Answer: - If your employer’s tie-up is with the same bank with which you have a regular savings account, then you can convert your savings account into a salary account. 

Before you convert your old salary account (held with a previous employer) to a savings account, do check with your new employer if they would allow you to continue holding on to your existing salary account.

Are savings and salary accounts the same?

As stated above, both have different uses. However, a few features are common which are provided by a bank to both the account holders, which include:

  • Easy & swift account opening formalities
  • Passbook Issue and printing
  • Alerts for account transactions
  • No charges for ATM usage at any other ATM
  • Setting up, executing, and amending standing instructions
  • Electronic funds transfer - NEFT/RTGS/IMPS
  • Branch services – cash deposit, withdrawal
  • Cheque – collection, stop payment
  • Phone banking
  • Net banking
  • Interest/TDS Certificate
  • Balance confirmation certificate
  • DD – cancellation, revalidation, and duplicate issue
  • Balance inquiry
  • 24/7 banking services

Which is better between a salary account and savings account?

Both salary and savings account present equitable merits. However, if your salary account gets converted to a savings account due to non-closure or non-conversion, then banks will charge a maintenance fee or a penalty for not maintaining a minimum balance.

At the same time, if you have a savings account in a bank and your employer also has a tie-up with the same bank, the regular savings account can be converted into a salary account.

It is highly recommended that keeping a separate salary account and saving account help manage your money better. Paying your fixed and variable expenses from a savings account will help you keep your finances organised.

Salary accounts are more profitable to the bank as it receives a fixed amount of money per month, thereby making it a fixed source of current account savings account (CASA).

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