According to Keynes, the cash you keep in your pocket is to meet day-to-day transaction demand. The money kept in savings bank (SB) account is to meet emergency or precautionary demand. The rest can be invested. Moreover, the money retained in SB account has two advantages from the tax angle: (1) interest income thereon up to Rs.10k is tax free and (2) even if it is more than Rs.10k per year, no tax is deductible at source.
Reaseons for Saving Accounts
A simple savings account is an easy, no-risk way to save money for a childs education. While savings accounts generally dont come with a high rate of return unless the account is sizable, the money in the account is not risked as part of an investment. If it is not withdrawn, it will continue to grow for as long as the account is in order. And, unlike some investments that are for college expenses only, a savings account that is for education can also be used for private school expenses, educational trips, and any other expenses that come up.
You are supposed to disclose the excess in your tax return and pay tax thereon. As all aware, TDS provisions are the worst in our tax legislation. You have to follow up for the certificate for tax deducted on bank FD interest, etc. In these days, a person earning say Rs.50k per month must keep between Rs.100k and Rs.150k in the SB account, so that he can have tension free life (from the liquid resources angle). More importantly, some private sector banks are offering 7 per cent on SB account.
Keeping in savings accounts in banks offering high interest rate such as Kotak Mahendra, Yes Bank etc., may yield tangible pecuniary results. With interest rates on Fixed Deposits may fetch immediate results. Where as real estate, share markets will not yield immediate results. Employees having salary as source of money should not invest in shares if they lack necessary acumen.
Shashikant Nishant Sharma