There was a time when using a bank was simple. You opened a savings account, mostly with cheque facility, your deposit earned you some interest, and that was it. For anything else, you had to go over to the branch. If you were charged for anything, it was there for you to see.
Today, more than a decade after the sector was opened to private players, things are vastly different. The process has become more comfortable, but also more complicated and, sometimes, more expensive. The question is, have you kept up with the developments and are you getting the edge the new facilities can give you? Check out eight smart banking moves to figure out.
1. Watch your cash flow. In India, unlike many other countries, most banks not only don't charge anything to let you maintain a savings account with them, they actually pay you a small interest on your deposit. (Before you open an account, ask the bank to give you a document delineating the rules.
You have a right to know your rights and obligations.) That said, there are a number of other costs that you should watch out for. Most of these have to do with your cash flow. "Most banks in our country have a practice of paying interest only on the minimum balance held between the 10th and 31st days of every month," says Mumbai-based financial planner Amar Pandit.
So, it makes sense to make most of your payments and deposits between the 1st and 10th days of a month, if possible, to get the maximum interest on your deposit. Use cheques judiciously. Most banks give two chequebooks free per quarter and charge Rs 2 for every additional leaf.
If you hate writing out cheques, it would make sense to arrange for your bank to automatically pay your utility bills, SIP (systematic investment plan) instalments and EMIs (equated monthly instalments). Make sure you get an alert before the payment is made so that you can stop it if you think the bill is faulty.
The most expensive penalty is for non-maintenance of the minimum quarterly average balance. So, it pays to choose a bank where this is low or arrange it to be zero. Be sure about the regular outflows and ensure you have enough money in your bank to make the payments. Allowing SIP or ECS (electronic clearing service) payments can cost up to Rs 750 in a private bank.
2. Get an overdraft facility on your account. The overdraft facility can ensure that your cheques don't bounce and automatic payments are not held back even if there is a bit of a delay in the arrival of money. "Return of cheque may attract a heavy penalty and also punishment for criminal offence," says V. N. Kulkarni, head of debt counselling centre Abhay's Mumbai office.
OD acts as a safety net if you fail to track how much you have paid out. It is cheaper than taking a personal loan and needs no extra paperwork. For instance, State Bank of India would give you an OD against fixed deposits at interest rate on FD plus 1.50 percentage points.
But its personal loan against securities will cost you at least 11.75 per cent. Even if the annual rate of interest is high, you will probably be using it to bridge your balance for a few days till you make a deposit. So, what you pay will be nominal.
3. Use sweeper accounts. Savings accounts would give you 3.5 per cent interest. The sweeper facility can be utilised to earn interest of 4-10 per cent by lumping the idle cash (over and above the QAB) lying in savings account in fixed deposits of 30 days or longer.
4. Try cooperative banks. You can turn to these if you are looking for a bank to make a term deposit or open an account. They often give higher interest than commercial banks, but may have limitations in terms of access. Their loans, too, could be a bit cheaper. But remember, they are riskier, so do your due diligence.
5. Make the best of your ATM card. Using ATMs for withdrawing money and getting statements is cheap and convenient. Some private banks limit cash transactions to 12 in a year from the base branches, that is, those in the same city. A charge of Rs 50 may be levied on every additional transaction.
If you move to another city, close your old account and open a new one in the new city. Use of the old account may require payment of as much as Rs 150 for every cash transaction after the first one. If you use an ATM card at the ATM of a bank with which the card issuing bank does not have a tie-up, you are likely to be charged for that. So, find out the banks, which allow free withdrawals. If you travel a lot, go for a bank with a wide ATM network.
6. Save by using phone and Net banking. These can be slightly more cost effective than walking into a branch. Stop payment of a cheque usually costs more if you go to a branch or speak to a call centre employee. HDFC Bank charges less if it is done through the IVR (interactive voice recorded) system.
Similarly, ICICI Bank charges less for Net banking. Getting a duplicate statement is cheaper through phone banking for both ICICI Bank and HDFC Bank. While seeking services from a bank, opt for cheaper and convenient media.
Make online payments through credit cards safely. Never enter a card number unless there is a padlock in the Web browser's frame, rather than the Web page. The Web address should begin with 'https' rather than 'http'. The 's' is for 'secure'. Consider reserving one credit card for Web use or signing up for a separate online payment service such as PayPal.
7. Know your manager. One way to do this is to invent a pretext for meeting the bank manager and then creating scope for further interactions. If there is a problem, knowing someone in the bank helps.
Most managers would like to build strong business relations with their customers. So, they are likely to reduce or waive a charge if you bring it to their notice that it appears too high or that you have been billed for something beyond your control.
8. Be careful about bank investment instruments. Banks sell two kinds of investment instruments. Products such as fixed deposits and recurring deposits are offered by banks themselves and carry a government guarantee against a default or loss up to Rs 100,000.
In the second variety come products such as insurance and mutual funds. Even if a mutual fund scheme has been sold by a bank, there is no guarantee against a loss on an investment in it. Insurance will usually be pushed by your man in the portfolio management service.
The bank is the agent here and would tend not to serve your best interests but to maximise its commission while selling insurance products. Deals of banks with insurance and mutual fund companies to push their products would limit your choice. So, do not blindly trust your bank for everything.
Finally, remember that banks are not charitable institutions. They incur costs when they offer services besides the basic ones. So, check whether there is a charge for them and sign on only if you think it is worth your while to do so.
