Alternatives to a Savings Account You Can Benefit From

Traditional savings accounts are a time-honoured financial tool to save and grow money. These accounts offer safety of funds, decent interest income and easy access to useful financial services. Those who cannot afford to  qualify for or maintain a minimum balance for a standard account can make the most of a zero-balance savings account online to grow financially. Unlike standard savings accounts, the zero-balance account does not involve minimum balance requirements, processing charges, and a complex application process. They are the most accessible financial tool out there.

1. Fixed Deposits:

As the name says, these come with a fixed tenure and fixed interest rates. You can park your surplus funds in a Fixed Deposit (FD) for a given tenure, varying from 6 months to several years. Upon maturity, you receive guaranteed returns, typically around 7%p.a. on the amount you initially invested.

FDs are the safest way to earn interest income if you can put up with fixed interest rates, lock-in periods and low liquidity. Mind you, if you are hard-pressed to withdraw funds midway through the lock-in period, penalties will apply.

2. Public Provident Fund:

If long-term savings are a priority, the Public Provident Fund (PPF) makes sense. Backed by the Government of India and immune to market instability, PPF is as safe as possible. It features a lock-in of 15 years and high-interest rates, revised at a given interval. Also, the investment, as well as the proceeds, attract tax rebates, and partial withdrawals and borrowings against the PPF balance are available.

On the downside, the annual contributions in PPF cannot exceed INR 1.5 lakhs. If you have a large amount of money to invest, PPF isn’t for you. The lengthy tenures and virtually no liquidity in the initial years make it unsuitable for short-term financial goals.  

3. Sovereign Gold Bonds:

Want to cash in on the potential gold price appreciation? These securities can exceed your expectations. Issued by RBI multiple times a year, SGBs offer 2.5% returns on one’s income. The returns come once in 6 months. Even if the SGBs fail to generate interest income, you can be assured of getting the principal amount back upon maturity. The interest income is tax-free. Zero capital gains tax is applicable if you do not redeem the bonds within the lock-in period.

The investment varies from 1 gram to 4 kilograms of gold, making SGBs accessible to a wide spectrum of investors. SGBs are as accessible as a zero-balance savings account online. The interest in SGBs is not as attractive as other asset classes. The investment is exposed to market fluctuations. The liquidity is limited as bonds cannot be transferred, sold or redeemed within the lock-in period. 

4. Investment Accounts:

Investment accounts like mutual funds, stocks, bonds and exchange-traded funds (ETFs) offer lucrative wealth-maximising opportunities if you are comfortable with risks. They are typically linked to the market, which means the potential for up to 15% annual growth is there. Subject to the investment vehicle, the lock-in periods are flexible or non-existent. You can easily access your funds when required.

The risk factor is always high with virtually all investment accounts, as their performance relies on market conditions, geopolitical events, and other factors. Also, you need experience and in-depth knowledge to make educated investment decisions, failing which losses are imminent. The expense ratios, brokerage fees, and transaction costs associated with these accounts will affect your overall profits.

Read Also: Simplifying Retirement Finances By Zero Balance Accounts for Senior Citizens

5. Unit-linked Insurance Plans:

How about an investment vehicle that offers insurance coverage? It is a possibility with Unit-Linked Insurance Plans (ULIPs). Your investment is divided into two parts. One is invested in equity funds, debt funds or balanced funds, while the other provides insurance coverage. The account holder not only earns decent interest income but also receives payouts in the case of death. ULIPs also provide plenty of investment options, alongside the ability to jump from one fund to another. Tax benefits are also there on both the premium as well as proceeds.

ULIPs are exposed to market volatilities, and require a certain level of market awareness to succeed with. Understanding how they work will help investors make the right investment decisions.