Considering a zero-balance digital savings account to start your financial journey? It is a good choice, considering the freedom that you get from maintaining a minimum account balance (and zero charges/penalties to worry about). Simultaneously, the accounts offer diverse banking services free of cost, from chequebooks and ATM/debit cards to online and mobile banking. What’s more, most salary accounts follow this pattern, making it convenient for those starting their careers and looking to venture into the world of savings and investments. Now comes the question- can you withdraw money from these accounts? The answer is yes, with certain caveats. Let us look at them below.
Transaction Limits & Other Key Aspects
When you set up a , there are a few aspects worth keeping in mind. They include:
Limits on transactions
Zero-balance accounts come with monthly transaction limits. Most banks, for example, permit only four withdrawals every month. What happens if you withdraw more than this number? The bank will instantly convert the zero-balance account into a regular savings account. At the same time, many banks also charge nominal fees for additional transactions.
Savings account limits
As per the RBI guidelines, you can have only a single zero-balance account in one bank. If you already have this account in one bank, it is not possible to hold any other savings account in the same institution. You have to provide a declaration when you apply to the bank for a zero-balance account, confirming that you do not have any such account elsewhere.
Transaction limits
A zero-balance digital savings account comes with transaction limits (these vary across banks). In most cases, the aggregate of all credit should not be more than Rs. 1 lakh in a year. In case your transactions cross this limit, further credit transactions will not be allowed for your account till the end of the particular financial year.
Another crucial thing is the account balance. Most banks have regulations where your balance should not cross Rs. 50,000 at any point of time. If this happens, further credit transactions will not be permitted until the balance is lower than this amount. The total transfers and withdrawals in the account should not also cross Rs. 10,000 every month (as stipulated by most banks).
Withdrawal frequency-linked charges
Zero-balance accounts have limits on withdrawals as mentioned above. Note that the maximum limits include ATM withdrawals at ATMs of your home and other banks as well. It also covers withdrawals (over the counter) at bank branches and AEPS (Aadhar-enabled payment system) transactions. As a result, crossing this limit means paying specific charges that vary across banks. It may be around Rs. 15-20 + GST for each additional transaction in most cases while going up to Rs. 100-150 or more + GST at some banks.
What should you do?
While a zero-balance account has its fair share of benefits, it may sometimes fall short during sudden emergencies where you need multiple withdrawals. You should thus set up these accounts initially before applying for at other financial institutions.
As mentioned above, setting up savings accounts in other banks is the need of the hour to prepare for sudden emergencies when you need to withdraw money several times. Did you know that you can also withdraw from your account even with zero balance? This is where overdraft facilities come in handy. Learn more about them below (it may help you in emergencies).
What are Overdrafts and How are They Different?
There may be scenarios where you’re short of money in your bank account (let’s say it has come down to zero) and need to raise funds to tackle urgent needs. Overdraft facilities are the answer to your financial woes in this case.
What it means
OD facilities enable you to withdraw funds from your account even when the balance is zero. The concept is withdrawing over and above the funds that are available already. These funds are arranged by the bank as unsecured or secured loans.
Modus Operandi
When they are given as secured loans, it is usually against collateral like fixed deposits. Banks and other financial institutions may also offer overdrafts as unsecured personal loans. ODs come with specific withdrawal limits, i.e. the maximum that you can withdraw from the account, based on your credit history, income, and relationship with the bank.
It can vary across borrowers, with unsecured ODs usually having a particular repayment tenure. You can flexibly withdraw and pre-pay the sanctioned overdraft multiple times within this tenure. Interest will depend on your credit limit, credit score, and repayment duration. OD facilities are also given as secured loans with collateral like your FD, securities, property mortgage, gold, and more. Interest depends on the collateral security type and the ratio of the loan to the collateral value. It can usually be around 100-200 basis points (over and above the FD interest) when against collateral.
Charges & Interest
Interest on the OD is at a specific rate (pre-defined), calculated daily and is debited monthly. It will increase if you default on the payments. Prepayment charges are usually absent for secured ODs even if you pre-pay the whole amount back into the account. Fixed/minimum EMI requirements are also not there for OD accounts.
Opening charges for these accounts vary across banks and also depend on the kind of facility you opt for. Most banks do not have processing charges for ODs against collateral like FDs, while some charge around 0.1-1% of the sanctioned credit limit. Other charges may include de-pledge, pledge creation, and stamp duty charges.
Overdraft facilities are thus a good way to raise money quickly during emergencies, particularly if you do not have much money left in your account.
Conclusion
While setting up a zero-balance digital savings account is easy and comes with varied benefits, it will have withdrawal limits and charges for exceeding the same. Thus, while you should start out with these accounts, always expand your portfolio to cover more savings accounts across banks. It will help you avoid withdrawal restrictions in sudden emergencies and you can also avail overdraft facilities if you run out of money to cover urgent needs.
