A savings bank account is a basic need in modern times. Besides helping you "save," a savings account provides high liquidity that does not come with other financial options. This can help fund all your immediate needs and emergency expenses.
While it is most likely that you do have a savings bank account, here are some reasons why you should consider having an alternative account.
1. Change in personal circumstances
In the majority of cases, an individuals starts with a bank chosen by their employer or a bank branch closest to their place of residence. However, when one decides to change their house or job, this will not seem as convenient.
If the new workplace has partnered with a different bank, you will have to maintain a minimum balance at your old account to avoid being fined a penalty. This is because the bank account will cease to be a salary account following the grace period allowed and become a regular savings account.
As for a bank account you opened at a branch near your residence, you will either have to ask for a transfer to the nearest branch you can find or close it if you move to a place where the bank does not have significant presence.
In both the cases, if you had an alternative savings account with a popular, you could close the other accounts without all the trouble.
2. Higher charges
If you stick to a bank that you chose by default, like in the cases above, you are likely to lose more on bank charges.
For example, if you have a salary account with HDFC Bank, you should be aware that over 5 ATM withdrawals in a month even if made at an HDFC Bank ATM, will be charged with a fee, whereas SBI allows unlimited free cash withdrawals at its ATMs.
Here your choice will depend on whether you make withdrawals very often or not. If you make withdrawals regularly and have an SBI ATM closer to where you live or work, you can transfer your savings to that account to avoid such additional charges.
Note that SBI's daily cash withdrawal limit is smaller than HDFC Bank's.
3. Secure your savings
Deposits (either savings, fixed or recurring) made at banks in India are insured only to the extent of Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DIGC).
This means that in the worst case scenario, where the bank declares bankruptcy and has to be liquidated, only deposits to the extent of Rs 1 lakh per account will be guaranteed to be returned to the account holder.
Although this is a far-fetched possibility, considering the new institutional framework introduced by the government to deal with bankruptcy, you can consider not putting all your eggs in the same basket.
Note that a maximum of Rs 1 lakh including principal and interest amount are insured per user. This means that if a person has more than one bank account with the same bank, all of those will be treated as a single account but if they are held at different banks, each account will be secure till the extent of Rs 1 lakh.
4. Unexpected financial regulations imposed on banks
In May, the Reserve Bank of India (RBI) imposed financial restrictions on Shivajirao Bhosale Sahakari Bank Ltd., a co-operative bank in Pune. Savings and current account holders will now be only allowed to withdraw Rs 1,000 at a time. Further, the bank is not allowed to accept applications for new loans.
Similarly, back in 2017, the central bank imposed restrictions on Mumbai-headquartered Kapol Co-operative Bank, wherein, customers could only withdraw Rs 3,000 in six months.
To avoid blocking all your savings, it is wise to pick an alternative savings account with a reliable banking brand like a public-sector bank or the post office (which has its payments bank).
5. Higher interest rates and better services
To maintain financial discipline and plan your expenses better, you can dedicate accounts for different purposes.
For example, small finance banks or some private banks offer higher interest rates. These may be ideal to make planned deposits towards a future goal as they will fetch you higher returns than your existing bank.
On the other hand, some banks offer wider reach with the ATM facilities, helplines and internet banking services.
Large banks provide such ease with their services that everything from opening a recurring account to making changes to your KYC details can be done using just your smartphone. You can choose such a bank for your day-to-day needs like paying utility bills and making purchases online.