Personal Finance - #1 - Selecting / Opening Bank Accounts.

Selecting a Bank Account is not as easy as it sounds, so I try to simplify it.

Aug 01, 2021

Personal Finance is very important for individual investors. I am writing the first part of series which focuses on selecting a Bank account for an individual. If this does well, I may venture out and start writing on selecting debit and credit cards, health and life insurances, selecting mutual funds, portfolio building and apps which provide convenience in personal finance. Please drop a like by clicking the heart or comment, if you’d like to carry forward the series.

Selecting a Bank Account -

Selecting a Bank account depends on individual preferences. Most of the individuals would have a bank account/ salaried account. A lot of individuals would have different bank accounts which cater to different purposes - For Example - Emergency Funds Account / Separate Account for a large expenses - Travel/ Marriage etc.

I break down Bank Accounts, general preferences and will note down which options would suit a particular Individual.

Safety of Money - Safety of money is the primary reason of putting money in bank. If a bank is mismanaged, it can lead to a person’s life savings getting eroded.
Under the deposit insurance and credit guarantee corporation (DICGC) RBI has insured up to a maximum of Rs. 5 lakhs (principal + interest) if the bank’s license is cancelled or the bank is liquidated. If there is a joint account, each account will also be insured at Rs. 5 lakhs. All commercial and co-operative banks are included in the insurance policy.
For details on DICGC - https://m.rbi.org.in/scripts/FAQView.aspx?Id=64
If the amount exceeds 5 lakhs in an account, the hierarchy of safety of Bank Accounts should be
a) Systematically Important banks - Systematically important banks or banks that are too big to fail are amongst the safest banks to invest because of their sheer size means that a failure of the banks would be catastrophic for the Indian economy. They are thus regulated to higher regulatory measures including additional common equity requirement.
Currently there are 3 banks in the Systematically Important banks - SBI, HDFC Bank and ICICI Bank.
b) Public Sector Banks- Public Sector Banks are amongst the safest banks as they are backed by the government. No government can afford to let a public sector bank fail as it may lead to economic chaos and political instability.
Public Sector Banks - Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, Bank of India, Indian Overseas Bank, Central Bank of India, Punjab and Sind Bank, Bank of Maharashtra.
Note : Some of the banks are in discussions of getting privatized and may not be in the safest category.
c) Large Private Sector Banks - Private Sector Banks with a good track record of corporate governance provide a good margin of safety.
Large Private Sector Banks - Axis Bank and Kotak Mahindra Bank.
d) Other Private Sector Banks & Foreign Banks - Next in line would be other private sector banks which are small to medium sized banks.
Other Private Sector Banks - IndusInd Bank, Bandhan Bank, IDBI Bank, IDFC First Bank, Federal Bank, RBL Bank, City Union Bank, CSB, DCB, Karur Vysya, Karnataka Bank, J&K Bank, DBS and other banks.
e) Small Finance Banks - Small Finance Banks have a shorter operating history than other banks and are thus below private sector banks.
Small Finance Banks - AU Small Finance Bank, Ujjivan SFB, Equitas SFB and others.
f) Co-operative Banks - Most Bank failures fail are in co-operative Banks. 1551 urban co-operative Banks failed in 2018.
PMC Bank was amongst the top 5 urban co-operative banks in India before its failure which shows the systematic risk in co-operative banks.
Larger Co-operative Banks - SVC Bank, Saraswat Bank, Cosmos Bank and Bharat Bank.
Note : No depositor money has been lost even incase of larger bank failures such as Yes Bank, PMC Bank, Lakshmi Vilas Bank though there has been moratorium and other restrictions for different banks for different periods.
After going through the above list, I have select 10 banks across different types for running past them the selected parameters.
- SBI , HDFC Bank and ICICI Bank - Too Big to fail Banks
- Kotak and Axis Bank - Large Private Sector Banks
- IDFC First and RBL Bank - Smaller private sector Banks
- AU SFB and Equitas SFB - Small Finance Banks
- DBS - Digital Foreign Bank
  Minimum Account Balance - Maintaining a minimum account balance is difficult for individuals and a lot of individuals would prefer lower minimum account balance as the penalties may erode your bank account balance Below are the banks with their Minimum Account Balance requirements (not including Basic Savings Bank Deposit Accounts as its has a maximum account balance of Rs. 50000 and other restrictions).
- Kotak 811 - Digital onboarding - MAB - Nil
- SBI Savings Bank Account / SBI Basic Savings Account - Nil.
- RBL Bank - Digital Onboarding - Prime Digital Savings Account - Rs. 5000. No MAB if RD/ SIP of 2000 is taken.
- Digi bank by DBS - Digital Onboarding - MAB - Rs. 5000
- Niyo X Equitas Digital Savings Account - Digital Onboarding - MAB - 10000. However, there are no charges on non-maintenance of MAB as on date.
- IDFC Vishesh Savings Account - MAB - 5000.
- AU Savings Account - MAB - 5000
- HDFC Bank - Regular Savings Account - MAB Rs. 10000 - Urban / Metro (There are other accounts which have more benefits and MAB for the same are Rs. 25000)
- ICICI Bank - Regular Savings Account - MAB - Rs. 10000 - Urban / Metro (There are other accounts which have more benefits and MAB for the same are Rs. 25000)
- Axis Bank Easy Access Savings Account - MAB - 10000 - Urban / Metro (There are other accounts which have more benefits and MAB for the same are Rs. 25000)
The benefit of digital account is the ease of opening and operating an account and how efficient it is and it saves the hassle of going to a branch and stuff. I personally use Kotak 811 which is a zero balance account and has no charges for online bank transfers and works perfectly for an emergency / second account or for a pure digital account. Mobile banking works well and the on-boarding procedure was seamless.
If there are other decent zero balance accounts / digital banks, comment below.
Interest Rates -
Savings Account - When starting out every penny counts, Attaching the Savings account interest rates for the selected banks.
1. RBL Bank - 4.25% upto 1 lakh, 5.75 % from 1-10 lakhs
2. IDFC First Bank - 4 % upto 1 lakh, 4.5 % from 1- 10 lakhs
3. Equitas (Niyo X) - 3.5 % upto 1 lakh, 7 % from 1-10 lakhs.
4. AU Small Finance Banks - 3.5 % upto 1 lakhs, 5% from 1-10 lakhs.
5. Kotak Mahindra Bank - 3.5% upto 1 lakh, 4% from 1 to 50 lakhs.
6. DBS - 3.25 % upto 1 lakh, 3.5 % from 1-2 lakh and 4 % from 2-5 lakhs.
7. HDFC Bank - 3.50 % upto 50 lakhs
8. ICICI Bank - 3% upto 50 lakhs
9. Axis Bank - 3% upto 50 lakhs
10. SBI - 2.70 %
  Fixed Deposits for the Banks - Fixed deposits are the most preferred security investment for Indians. Below are the banks with their interest rates for FD as on date . The rates are for 1 year (+1 day for general citizens )
  1. RBL Bank - 6.50%
  2. Equitas - 6.35 %
  3. AU Small Finance Bank - 6.10 %
  4. IDFC First Bank - 5.50%
  5. Axis Bank - 5.1%
  6. SBI - 5%
  7. ICICI Bank - 4.90%
  8. HDFC Bank - 4.90%
  9. Kotak - 4.5%
  10. DBS - 4.25 %

Other facilities -

Public Provident Fund - Public provident Fund is a decent investment which provides a solid interest rate is tax exempt. Of the selected Banks only a few banks provide Public provident fund facility.

SBI
HDFC Bank
ICICI Bank
Kotak Bank
Axis Bank

ASBA - ASBA Facility is the most reliable way for applying for a IPO and for some individuals having an ASBA account is very important. All selected banks except Equitas SFB provide ASBA Facility.

HDFC Bank
ICICI Bank
Kotak Bank
Axis Bank
SBI Bank
RBL Bank
IDFC First Bank
DBS
AU Small Finance Bank

List of all banks covered providing E-ASBA facility - https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=34

Internet / Mobile Banking and Customer Care - The opinions would be relating to my personal experience and can differ from person to person.

SBI has a bad rep for having bad customer care and I would partly agree to it, if you have some issues, it may take a longer time to resolve. However amongst the larger banks, the digital infrastructure of SBI is very robust and amongst the best I have used.

HDFC Bank has the worst internet banking system spewed with a 1000 ads and promotions and is very unreliable, also I have had bad experiences even relating to customer care by the Bank.

ICICI Bank due to their size also has frequent downtime issues however it is slightly better than HDFC Bank.

I have personal accounts with Kotak 811 and RBL Bank and can personally vouch their digital and mobile banking infrastructure is very good. I have had no complaints from that end.

Digi Bank and Niyo X also have solid internet infrastructure and have had solid reviews at least from people who I know.

IDFC First Bank earlier had a very liberal savings account interest rate but that is not the case now. There were some issues with ASBA account in which not all IPO’s were available, I am not sure if that has been resolved. - Example - Brookfield REIT was not listed.

I have not used AU SFB and Axis Bank accounts so don’t really have an opinion, but online reviews for both are fairly positive.

Conclusion - I have tried to put a basic set of list to enable individuals making a more informed decision about opening a bank account. Let me know if you use any bank accounts which are very efficient and if you have a positive opinion on the same.

I primarily write about stocks in the small and midcap space and I want to add a bit of personal finance to it as I believe making personal finance decisions is tougher than it looks. Check out my other posts below.

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