When it comes to your money, you want to make sure that you make the right decisions. But how do you know which decision is best for your situation?le - under_page_title -->
That’s where we come in! We will help you understand what makes savings accounts and zero balance accounts different so that you can choose the one that works best for your needs.
This article explains how a zero-balance account differs from a standard savings account and why it can be better in certain situations.
Let’s start with a definition of each type of account.
What is a Savings Account?
A savings account is an interest-bearing bank account where customers deposit their money and earn interest on those deposits. The funds may be withdrawn at any time without notice or penalty.
This type of banking product was originally designed as a long-term investment vehicle but has become more popular to save short-term cash reserves.
An example of when you might want to use a Savings Account is if you’re saving up to buy a new car or any emergency. You can put some money in the bank every month and then when you have enough saved up, you can go buy the car!
How does a Savings Account work?
A Savings Account allows you to save money over time and earn interest on your deposited amount. The interest rates are typically variable, meaning they can change at any time. This type of account is a great way to build up your savings over time.
However, you have to pay charges or fees if you make an ATM withdrawal or a debit card purchase using your Savings Account.
The benefits of having a Saving Account account.
Here are the top reasons you might want to choose a Savings Account.
Interest on savings: You can earn interest on your money by keeping it in the account for a certain period until you choose to withdraw it.
Safety: When you’re looking for a safe and reliable place to park your money, a savings account is a great option. You’ll typically earn a decent interest rate on your deposited funds without having to worry about the risks associated with other types of investments.
High liquidity: Savings Account balances are very easy to access. You can use the ATM or make a cash withdrawal, or you can even write a check against your account (though some banks may charge a fee for this).
Minimum Balance: Some savings accounts require you to keep a minimum balance in there at all times. This is an ideal option if you don’t want to worry about keeping your account balance.
Withdrawal frequency: Savings Account balances are typically very easy to access, which means you can withdraw or transfer money whenever you need it. You will have to keep a minimum balance in the account, though.
Debit card with added benefits: When you open a savings account with the bank, they’ll give you a debit card. This card is extremely convenient to use- you can withdraw cash from ATMs and make purchases directly with it. Plus, many banks offer rewards and cashback when you use your debit card for everyday transactions. You can enjoy rewards on everything from groceries to movie tickets!
Disadvantages of having a Savings Account
Now let’s look at some of the disadvantages of using this bank account.
Interest rates aren’t guaranteed: Savings accounts typically offer variable interest rates, which means your rate can change over time. This is different from other savings accounts where the rate is fixed for long periods.
If you don’t keep a minimum balance, you will pay fees: Savings accounts typically require you to keep a certain amount in the account at all times. If you don’t keep this required minimum balance (known as the ‘maintenance’ or ‘average daily balance’) in your account, then you might end up paying hefty fees.
Every bank has its own fees: Many banks will now charge you a monthly fee if your account doesn’t meet their minimum threshold or keeps a low balance.
Interest rates aren’t very high: Savings Accounts may not offer the highest interest rates on savings. However, they are an easy and safe way to save money and come with added benefits like debit cards.
What is a Zero Balance Account?
A Zero Balance Account, or Zero-Based Budgeting (ZBB) account, is a bank account in which customers deposit their money and have no money left at the end of the month. This type of bank account was originally designed for people who need to pay bills and have no money left over at the end of the month.
An example of when you might want to use a Zero Balance Account is if you’re struggling to make ends meet. In this case, a Zero Balance Account can help you stay organized and keep track of your spending.
Why does the bank offer a Zero balance Account?
In order to promote financial literacy among Indian people, RBI has asked all the banks to offer a Zero-balance account. This type of savings bank account where no money is required to maintain it.
This account can be opened by any family, lower middle class or upper-middle class. Even if a person’s salary goes into a negative balance, there is no fear of their account getting debited.
There are two types of Zero Balance Saving accounts.
Basic Savings Bank Deposit Account is a Zero Balance saving account open under Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme.
If you don’t have a bank account, you can open a Basic Savings Bank Deposit Account (BSBDA) under Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme. BSBDA is a zero-balance account, so you don’t have to worry about maintaining a minimum balance.
You would need valid KYC documents to open the account. If you don’t have valid KYC documents, you can still open a small basic savings account.
However, you will need to submit the valid documents within 12 months.
Normal Zero Balance Saving Account
Under the Zero balance Savings Account, there is no requirement to maintain a minimum balance.
The Zero Balance Saving Accounts are generally opened in the name of individual account holders. Various banks have started to offer Zero Balance Saving accounts in recent times.
The ICICI Mine Zero balance Account in the private sector banks and the Canara Bank Zero balance account in the public sector are two of the finest normal zero account examples.
The benefits of having a Zero Balance account.
Here are the Benefits or Pros of a Zero Balance saving account.
No minimum balance commitment: Zero balance accounts require no minimum balance. Zero Balance Savings Account provides you the freedom to deposit or withdraw any amount as and when you need it.
Easy to open: Zero Balance Saving Accounts are easy to open and manage. All you need is basic KYC documents like Voter ID, PAN card, Address proof etc.
Free account: Zero balance accounts don’t charge fees for opening, maintaining or using the account.
Debit card: When you open a zero-balance savings account, you get a free RuPay debit card that can be used to withdraw cash and make payments. In the case of an online savings account, cardholders receive a VISA or RuPay debit card from their bank. These debit cards come with complimentary insurance coverage.
Student Friendly: Zero Balance Savings Accounts do not charge any fees on transactions and offer free ATM cash withdrawals. A zero balance savings account is very useful for students. They can withdraw or deposit as per their requirement, which otherwise requires a request from parents.
No Monthly charges: Zero Balance Savings Account offers you the freedom to deposit and withdraw money anytime, and there is no monthly maintenance charge and no minimum balance requirement.
Government subsidy: If you receive a government subsidy amount, it will be credited into a Zero balance account. Zero Balance Account also helps you avail subsidies from the government’s social welfare schemes.
Cheque Books: Zero Balance Saving account facilitates cheque book facility to write demand drafts, pay utility bills etc. However, you have to pay nominal fees for the checkbook.
Overdraft: You can get an overdraft facility in Zero Balance Savings Account. In this case, an overdraft limit may be limited but may go up to Rs.10,000.
The Disadvantage of having a Zero Balance account.
We have read the benefits of a Zero Balance Savings Account. However, a Zero Balance Savings account has some disadvantages that you need to keep in mind before opening the account. Here are they:
Only Available to Indian: Zero Balance Savings account is available only to Indian citizens. Zero Balance accounts are not open for Non-Resident Indians (NRI) or Foreign Nationals.
Comes with Initial restriction: Zero Balance Savings Accounts come with an initial restriction that makes it difficult for account holders to use all the services offered by Zero Balance Savings Account. You have a balance of more than Rs.1,00,000 at any point in time, and you can deposit more than Rs.2,00,000 in a year.
However, these restrictions are lifted after the completion of Full KYC.
Cheque book facility is Limited: Zero Balance Savings account offers you checkbook facility, but only there are limited to cheque leaves.
No foreign remittances: Zero balance Savings Account doesn’t allow foreign remittances. Zero Balance Savings accounts serve only Indian residents with Indian currency.
So, what is the difference between a Zero Balance Savings account and Savings Account?
A Zero Balance Savings Account is a bank account where you do not maintain a minimum balance. This type of account is ideal for people who need to easily access their money, as there is no restriction on the number of withdrawals that can be made.
On the other hand, A Savings Account requires you to save money over time and typically offers premium services. With a Savings Account, you can earn interest on your deposited amount.
Both Zero Balance Savings Accounts and Normal Savings Accounts offer different benefits for different people.
Zero Balance Savings accounts are great for people who need to access their money easily, while savings account offers more benefits to savers who want to make regular deposits. After reading this article, we hope you have gained adequate knowledge to decide on a Zero balance account or Savings Account (or both)!
Please share your feedback on Zero Balance Savings accounts and Savings Accounts! in the comment box below. We would love to hear from you.