Salary Account vs Savings Account - what's the difference?

A savings bank account does have some drawbacks. In exchange for liquidity, it offers a lower rate of interest compared to other instruments with lock-in periods. It also requires you to maintain a minimum balance based on the account variant. If it goes lower than this, you will have to pay a penalty. Lastly, the interest you earn is considered taxable income. This tax obligation can reduce the overall returns you earn from your savings bank account. 

What is a savings account?
 

As the name suggests, a savings account is an account that you can open with a banking institution that allows you to deposit money and save up. The bank incentivises you by securing your money and offering a modest rate of interest. 

One of the biggest benefits of a savings bank account is the safety and availability of funds at all times. This money you put in it can be used for your short-term needs or emergencies such as medical expenses, car repairs, an important purchase, or unexpected travel.

A savings bank account does have some drawbacks. In exchange for liquidity, it offers a lower rate of interest compared to other instruments with lock-in periods. It also requires you to maintain a minimum balance based on the account variant. If it goes lower than this, you will have to pay a penalty. Lastly, the interest you earn is considered taxable income. This tax obligation can reduce the overall returns you earn from your savings bank account. 

What is a salary account?
 

A salary account is opened with the sole purpose of crediting an employee’s salary each month. It is opened by banks on request from businesses with a sizable number of employees. Salary bank accounts come with various features that benefit employees. The most significant advantage is that it requires zero minimum balance, so you can withdraw your entire savings without having to worry about a penalty fee. This offers a significant layer of convenience, particularly when unexpected expenses arise.

A salary account also offers easy access to various borrowing products. IDFC FIRST Bank, for instance, offers salaried employees an easy application process and quick approval for a home loan, car loan, personal loan, etc., at competitive interest rates. Banks can offer these attractive benefits as they are sure you will earn a certain amount each month that can go towards paying EMIs, reducing the risk of default.

A salary bank account also comes with several investment services that let you easily invest in government bonds, insurance products, etc. This serves as another layer of financial security, allowing you to grow your money without undue complexity. The smart investment plans can be a valuable tool in a salaried individual's financial planning as they get returns on the invested capital.

Note that only employers can open a salary bank account. If you are not a salaried individual, you won't have access to this account type as it is exclusively tailored to facilitate easier financial management for employees.

Difference between a salary account and savings account

The following are the differences between a salary and savings bank account:

• Purpose 

Salary bank accounts serve primarily for receiving monthly wages. A savings account is used to keep funds, save for future purposes, and earn interest on savings. People use it to save for various needs such as vacations, emergencies, or investments.

• Minimum balance requirement

A salary account typically doesn't require a minimum balance, but a savings account often imposes a minimum balance requirement. If you fail to maintain this balance, you will incur penalties. 

• Interest rates

Most banks provide interest on both salary and savings accounts, usually at similar rates. However, to better meet customer needs, banks now offer various types of salary and savings accounts. Hence, they can have varying interest rates, even within the same bank.

• Who can open the account?

An individual whose company maintains a salaried relationship with a bank can open a salary account. On the other hand, almost anyone can open a savings account by submitting the required documents and satisfying basic eligibility criteria. Age, occupation, and income level usually don't matter. Even kids can have savings accounts, supervised by parents or guardians.

Similar features of a salary account and savings account
 

The common features between salary and savings accounts are as follows:

• Interest income earning 

Both salary and savings accounts let you earn interest. You get a small percentage of your account balance as interest, and the frequency can be on a monthly or quarterly basis. Thus, your money doesn't just sit idle, it grows over time.

• Cheque books, passbooks, and debit cards

These transaction tools add flexibility and security to your banking experience. A chequebook helps in making payments without cash, a passbook records all your transactions, and a debit card makes cash withdrawal and online shopping easy. 

• Remote account access

Another feature that both types of accounts share involves remote access. Through internet and mobile banking, you can perform a range of actions. From checking balances to paying bills, you can handle everything without setting foot in a bank branch.

• Online fund transfers

Fund transfers are simple and quick with both types of accounts. You can use several methods like NEFT, IMPS, RTGS, UPI payments, and digital wallets to make transactions. You can send money across the country or even abroad, settle bills, or pay for services with just a few taps on your phone or clicks on your computer.

• Easy receipt of payments

Not just for outgoing transactions, these accounts are equally proficient in receiving funds. Someone can transfer funds to your account via a multitude of methods, be it UPI or a simple bank transfer. So, it doesn’t matter if it's your monthly salary, a monetary gift, or any other form of income, the money lands securely in your account and instantly.

• Alerts and notifications

For any transaction you make or any activity in your salary or savings account, an SMS alert or notification arrives on your phone. This keeps you informed and adds a layer of security, notifying you of any unexpected or unauthorised activity.

• Utilising banking facilities

Salary and savings accounts offer more than just places to store money. You can apply for loans, open fixed or recurring deposits, make investments, and check your account balances.

Conclusion
 

Both savings and salary accounts serve their intended purposes. If saving money is the goal, choose a savings account. If you are a salaried individual who wishes to manage money optimally, a salaried account is best suited to your needs. Whatever your requirement, IDFC FIRST Bank has a variety of banking options for all your needs

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may chaInterest income earningnge materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.