In an earlier post, we have stated the importance of an emergency fund. Emergency fund is important as it can help you tide over emergencies such as job loss, urgent car repair or a medical emergency.
Typically, one should have at least 3 to 6 months of expenses in an emergency fund.
Looking at the current scenario, building an emergency fund has become the need of the hour. Savings account and liquid fund, a debt mutual fund are used to build an emergency corpus.
Savings account to build emergency fund
However, if you haven’t invested in mutual funds and want a safe and secure option for our emergency corpus, savings account can be a safe option.
There are many advantages of using a savings account as an emergency fund. The ability to withdraw and deposit money anytime, flexibility to transfer money from one account to another through net banking, mobile banking or UPI apps, makes savings account an ideal option.
Why you need a different savings account?
While you have a regular savings account or a salary account, it is always better to have a savings account earmarked as an emergency fund.
As we use our account to do almost everything from shopping online, paying utility bills and buying products at shopping malls, keeping a track of your emergency expenses can be a tedious task, if not impossible. Hence, a separate savings account can help to build your emergency fund in an orderly fashion.
How to use this savings account
While making an emergency fund in a savings account, it is important to remain cautious. It is easy to use the money lying in your account to pamper yourself by going to a spa because you feel depressed or to swipe the debit card to buy a black dress to impress your date.
The emergency fund is meant for real emergencies, not imagined. So, refrain from adding the debit card details on online shopping portals or taking it with you to shopping malls.
To build a good corpus, you set up a recurring transfer where a specific amount will be transferred from your regular savings account to your emergency savings account. Also, you can transfer the money remaining in your account at the end of the month to your new account.
How to open a savings account?
Opening a savings account is now easy as making noodles. If you have your Aadhaar number, you can open a savings account online with no paperwork. Thanks to the RBI regulation allowing banks to open savings account through the Aadhaar OTP verification, many banks offer online savings accounts to customers. Kotak 811, Axis ASAP, digisavings, Ujjivan Digital Account are some top savings account that can be opened online.
Features of these online savings accounts
Online savings account or digital savings account is a bit different from regular savings account.
Here are some features:
Open Online Instantly:
Customers can open these accounts instantly online. You just need to fill up the required details. You need to add your Aadhaar registered mobile number, after which you will get an OTP on your mobile number. You can add the OTP to verify your details to open the account.
After opening the account, you will get a virtual debit card that you can use to shop online and pay bills.
Zero balance accounts:
Most of the online savings account such as Kotak 811, Axis ASAP, digisavings are zero balance accounts. As a result, you don’t have to keep any minimum average balance in these accounts. RBL Bank’s digital account have a minimum average balance requirement of Rs.10,000. However, this average balance requirement is waived off if you open an Recurring Account or Systematic Investment Plan of at least Rs.2000.
Indian residents above 18 years of age can open an online savings account. These accounts are available for new-to-bank customers. This means that if you have any existing relationship with the bank, you won’t be able to open the digital bank account.
Validity of the account
The account is valid for 12 months. To continue using the account, you need to complete the KYC process by booking an appointment or visiting the nearest bank branch. With biometric authentication process i.e. by giving your fingerprint, they can complete your KYC process within minutes.
Currently, due to COVID-19, the full KYC process may be delayed.
After opening the bank account online, the transaction limits of these digital accounts is Rs.2 lakhs(withdrawals + deposits) and you can’t have more than Rs.1 lakh in your account at any point in time. You need to complete the KYC process to lift these limitations.
Only one Aadhaar OTP based account
According to the RBI regulation, an individual can only open one account through Aadhaar OTP verification process. Aadhaar OTP verification process is the procedure where you add your Aadhaar registered mobile number and verify the OTP sent to your mobile number.
Hence, if you have opened a Kotak 811 account, you should not open another digital account, e.g. Axis ASAP.
In the current scenario, it is not advisable to visit a bank to open a savings account. However, given the current scenario, if you are looking to save towards emergencies, online savings account can be a good starting point.
Open the account instantly and fund the account from your existing account through NEFT, IMPS and UPI.
Good luck and stay safe!