Salary Account Vs Savings Account: Key Features And Differences
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21 June 2022Savings accounts are interest-bearing deposit accounts. They form the basis if you wish to avail banking services through NBFCs or banks. Savings accounts are flexible, making them suitable for storing funds. Yet they are liquid enough to meet your short-term financial commitments. Also, banks and NBFCs customize these accounts for customers. These also include the salary accounts for corporate employees. That is why you must understand the salary account vs savings account to know its financial impact and supporting services.
Table of contents
What is a Salary Account?
When discussing a salary account vs a savings account, a salary account is a type of savings account. Corporate houses open these accounts to credit the employees’ salaries every month. Thus, every employee gets a salary account that comes with several employee-specific facilities. Besides, the salary account holders receive other benefits specific to their needs. For example, the account comes with no minimum balance clause. This is the reason these accounts are also called “zero balance accounts”.
Also Read: How To Save Tax On Salary: 15 Ways To Reduce Taxable Income
What is a Savings Account?
The next step when discussing a salary account vs a savings account is knowing about a savings account. This type of account can be considered a stepping stone to banking services. It is one of the most reliable deposit accounts that banks and NBFCs offer. They pay a modest interest rate but are accessible for drawing emergency cash. Most banks offer several savings account variants tailored for specific customer classes. Some examples are women’s accounts, defense personnel accounts, etc.
The key takeaways from a savings account are:
- The savings account balance can meet your daily short-term financial needs
- Interest is lower than other bank deposits in exchange for liquidity
- You can withdraw funds from your savings account at any time
- The interest earned is subject to taxation according to extant laws
Differences on Salary Account Vs Savings Account:
The restriction in account opening is the basic difference between salary accounts and savings accounts. Salary accounts are for salaried individuals. But any individual of any gender, age, and income status can open a savings account. In addition, a salary account is the first step in one’s professional life. While a regular savings account introduces individuals to the banking world. So, let us dig deeper and highlight their specific differences.
| Parameters | Salary Account | Savings Account |
| Account Purpose | The sole purpose of this account is for crediting salaries every month. | This type of account instills the basic habit of saving in individuals. They learn to save and manage their finances. |
| Minimum Balance Requirement | No minimum balance clause applies. You can withdraw your salary from the account at any time. | The minimum balance requirement is mandatory. Besides, you become liable to pay the penalty for violating the clause as per the individual bank’s service charge rates. |
| Interest Rates | Banks pay a modest interest with additional features. It is specific to corporate clients under a tie-up arrangement and banking relationship. | Interest rates are nominal. They remain the same across all the savings account variants in a particular bank. Financial institutions do this to attract customers to a feature-driven savings account. |
| Account opening | The usual procedure is for the employee to open a salary account in the bank. Or, the employer can also open the salary account on behalf of their employee. This can be done during the onboarding process. | Any eligible applicant can open a regular savings account. They can do so to meet financial needs and access other banking services. These include fixed deposits, loan accounts, and remittances, both inland and foreign. |
| Account Convertibility | The conversion to a regular savings account is automatic. It happens if salary credit stops for a specific period. This happens after three consecutive months. After this, the account becomes a standard savings account. | A regular savings account converts into a salary account if the bank allows it. In most cases, the bank allows such conversion if the employer’s corporate business account is in the same bank. |
Similarity Between Salary Account And Savings Account:
There are several differences between salary accounts vs savings accounts. However, at the same time, many features are common to both accounts. Thus, customers enjoy the following regardless of the account type:
- Seamless account opening process and formalities
- Individual account passbook issue and print
- SMS and mail alerts for account transactions
- Waiver of ATM charges across banks subject to specific limits
- Freely setting, executing, and amending standing instructions
- Electronic fund transfer facilities
- Branch banking services, including cash deposit and withdrawal
- Cheque issue, collection, stop payment, etc
- Internet banking, phone banking, and mobile app banking
- Issuing interest and TDS certificates after the completion of the financial year
- DD issue, cancellation, revalidation, and duplicate management
- Missed call balance inquiry facility
- Mail delivery of periodic account e-statements
- 24/7 banking services
Additionally, account holders can also avail several digital services. Banks and NBFCs have made this possible through various user-friendly mobile banking apps. Thus, you get easy access to services related to investment, bill payments, recharges, etc. You can also maintain government-sponsored PPF and SCSS accounts.
Tax Imposed on Savings and Salary Account:
The interest earned from a salary or a savings account is eligible for equal taxation. If the interest exceeds Rs.10000 in a financial year, a TDS application is mandatory. The implication is that you get tax exemption up to the threshold specified. In addition, you must include the savings interest in your ITR while e-filing your returns for the relevant financial year.
Also Read: How To Apply For A Low Salary Personal Loan Online – A Step-By-Step Guide
Should You Have a Salary or Savings Account?
In this discussion of salary account vs savings account, it is clear that both serve specific purposes for salaried individuals. Employers insist upon a salary account as a condition for salary payment. A savings account provides the necessary platform to save funds for managing expenses. However, most individuals generally have both accounts to meet their needs. In addition, there is no bar in maintaining a salary and savings account in the same bank branch or elsewhere.
Final Word:
The salaried individuals are the customers who move between the salary and savings accounts. The salary account is necessary for their professional lives. And the savings account is crucial in the financial world. Regardless of the salary account and saving account, both have a utility value. However, individuals who switch jobs must be careful with their salary accounts. This is to avoid imposing a minimum-balance penalty denting their pocket.
FAQs on Salary Account Vs Savings Account
Ans: Many organisations accept an existing salary account with the previous employer. However, it must not clash with their corporate policies.
Ans: Banks and employers allow joint salary accounts. However, the joint account holder must be the spouse, parent, sibling, or children of the employee. In addition, they must adhere to the KYC norms.
Ans: Yes. You must submit the employment confirmation certificate to open a salary account.
Ans: Yes. The salary account holder is eligible to get debit and credit cards that have a higher limit. They also get more home and vehicle loan options. The reason is the assurance of monthly salary credits to the account.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
