Couple of bank accounts, loads of convenience

Amar Pandit 

Holding multiple bank accounts is quite common. Consider this scenario. Rohit Rane, a 46-year-old IT professional, has held numerous jobs over the years. Each time he changed job, the employer opened a new account for him with their bank. Consequently, he became the holder of more than four bank accounts.

For him, answering a simple question about the balance in an account turns into a treasure hunt through the piles of papers on his desk. The most crushing aspect is the prevalence of a negative balance in some of the accounts due to non-maintenance of the minimum balance.

While he wishes to close some of the accounts, he lacks the time or patience to go to a branch, wait there and get the work done. Unfortunately, it is common story for many professionals.

The issue gets further complicated for Rohit because he uses a different account for every different purpose; one account to pay his credit card bills, another for home loan EMIs, a third for investments and insurance needs, and the fourth one for his living expenses. Deposits and transfers need to be made on an ongoing basis to meet minimum balances in the four accounts and this leads to confusion. The situation is tricky, but Rane has no one to blame for it, except himself. When it comes to money, having more of it seems better but when looking for a place to park that money, the lesser the confusion, the better. Of course, it is important to have more than one bank account.

This is because the money you deposit in banks is insured to the tune of just Rs 1 lakh per account. So, in case of any unforeseen circumstances, your bank was to go bust, you would be in trouble. To address this risk, a person should hold at least two bank accounts at a time. Also, for a business person, it is ideal for professional accounts to be kept separate from personal ones.

This makes record keeping easier and ensures that during tax season you can comfortably segregate personal and professional expenses.

How many accounts should a person ideally have? To answer this question, we first need to understand the various avenues or transactions that would involve a bank account. Basically, there are two types:

• Inflows: which include salary, interest, dividend, gifts, rental income or lottery.
• Outflows: which include loan payments, credit card payments, lifestyle expenses, gifts, investments, and insurance payments.

Generally, the accounts people hold are:

• Salary account
• Salary account/s through previous employer
• Dormant accounts
• Home loan attached to an account
• PPF account (with a nationalised bank)
• Current account, if you are a business owner
• Accounts in the names of their spouses and children

Taking into consideration the above-mentioned data and applying it to a double-income family, there would be at least six to eight accounts within a family.  Keeping a track of them and managing them competently is a complex affair. The intricacy of the situation is felt more when the information must be collated and handed over to a chartered accountant or financial adviser.

Segregate the money

To cut down on clutter, it is better to have two accounts and take the following steps to segregate the money.

• We can all pretty much agree on the fact that the salary account is the most important one. If your employer does not provide one, designate one account as your salary or inflow account. All inflows whether salary, dividends, interest should go into this account. (It is likely that you have some fixed deposits in other banks and hence, some interest coming there which is easy to manage). Ensure that all your home loan EMIs, insurance payments and investments are made from this account. You can set up an auto-debit for these transactions from the account. Of course, many people have home loans and could have a separate bank account with the home loan account.

Having one account for your inflows and another for your outflows makes yours and your chartered accountant’s life much easier.

• Have a separate account for your living expenses. You could even opt for a joint account with your spouse that can be utilised for bills and credit card payments (including telephone, property maintenance, cable, food, groceries, petrol, vacation etc.)
• You could do it the other way around as well; where you pay all expenses from your salary account and investments, your insurance and loan payments from another account. Since home or car loan EMIs, insurance premiums and investments are well-known in advance, you can be pretty sure of the amount that you need to transfer from your salary account.

It is important to remember that crores of rupees go unclaimed every year from forgotten or dormant accounts. These are mostly because many people don’t use these kinds of accounts for years together. As it’s said, too many cooks spoil the broth. Similarly, too many accounts can spoil your finances. Hence, it is better if you have two or at best, three bank accounts to manage your finances.

The author is Founder, happynessfactory.in, an online wealth management advisory. The views expressed in this article are his own.