“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.
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.
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.
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.
The only salaried person can open a salary savings account.
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.
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:
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).
