Personal Finance

Here's how you can make the most of your savings account

Updated : January 16, 2020 11:54 AM IST

The annual bank statement offered by savings account offers a record of income earned and can be considered as a document for tax compliance.

Pre-approved loans, credit cards and overdraft facilities can be availed using savings accounts.

The best way to earn higher interest on a savings account is to transfer the money to investment instruments.

The main purpose of a savings account is to deposit money. However, just leaving a huge sum of money in the savings bank account is not considered an efficient way of managing money. Leaving money idle in it does no good, say experts. Banks generally offer lower interest rates on the balances in the savings account. Hence, depositors should try to maximise the benefits of the savings account. The best way to earn higher interest on a savings account is to transfer the money to investment instruments, based on the asset allocation and risk profile of the depositor.

(Also read: How to plan your taxes early to avoid last-minute rush)

Here's how you can maximise the benefits of savings bank account:

Savings account creates an account holder's relationship with the bank and works as their cash management system. Depositors can keep the track of income earned and the expenses.

The annual bank statement offered by these accounts can be considered as a document for tax compliance.

These accounts can be used to set up any systematic transaction. Investments in a recurring deposit, fixed deposit, public provident fund (PPF), insurance and other investment avenues can be done using a savings account.

(Also read: How to invest in mutual funds via SIP? Key things to know)

Tax exemptions on these accounts

According to Naveen Wadhwa, DGM, Taxmann, an exemption is granted under Section 10(15)(i) of the Income-tax Act, 1961 (Act) for interest earned on post office savings account.

“Exemption is granted on interest up to Rs 3,500 for a single account and up to Rs 7,000 for joint account in this case,” he said.

An account holder can also claim deduction on post office saving account interest to the extent of Rs 10,000 as per section 80TTA of the Income Tax (I-T) Act. In case the individual is a senior citizen, the deduction can be claimed of up to Rs 50,000 under section 80TTB.

“In case of regular bank savings account, the interest received is taxable under the head 'Income from other sources'. Section 80TTA provides for a deduction of up to Rs 10,000 on interest income and therefore, interest earned beyond Rs 10,000 only is taxable. This deduction can go up to Rs 50,000 in case of a senior citizen,” Wadhwa explained.

Other benefits

Pre-approved loans, credit cards and overdraft facilities can also be availed using savings accounts. Additionally, bill payments, tax payments, EMIs and insurance premium can be automated through a savings account.

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