Benefits of Keeping Salary and Savings Account Separate

Mar 03, 2022

Listen to Benefits of Keeping Salary and Savings Account Separate

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If you are a salaried person, you know how salary accounts make our life convenient. Gone are the days when salaried individuals used to receive their salaries in cash or by cheque. Every month, individuals had to visit their bank to deposit the cash or salary cheque into their savings bank account and later issue a self-cheque to withdraw money from their account. To make the process simpler, many employers started depositing the salary directly into the employees' bank accounts, which introduced a new type of saving account called a Salary Account.


What is a Savings Account?

  • A savings account is one of the most popular bank accounts for individuals, as it is a multi-purpose account, mainly used for regular savings and withdrawals.

  • The interest rate offered on the savings accounts differs from bank to bank but is generally in the range of 3% p.a. to 4% p.a.

  • Unlike many other banking products, a savings bank account does not have many requirements and restrictions on account opening and operations.

  • It can be opened and used by a person/persons or entity/entities for different requirements. And, for most people, it is their first interaction with the financial system.

  • It comes with an average minimum balance requirement that must be maintained in the account to avoid related charges unless specified as a zero-balance savings account.

  • Every savings account has a daily cash withdrawal limit, which may differ for branch cash withdrawals and ATM withdrawals.

  • You can choose a type of savings bank account as per your requirements, such as a minor account for a kid, a HUF account for a HUF, a joint account with a spouse, premium savings account to get premium debit and credit card, etc.

Is it Beneficial to Keep Salary and Savings Account Separate?
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What is a Salary Account?

  • A salary account is a type of savings account in which you receive your salary.

  • Usually, the corporations open these accounts through the banks to pay salaries to their employees.

  • Each employee of the company will have their own salary account to which their salary gets credited.

  • Once the bank receives the payment instruction from the corporation, the bank debits the company's account and credits the employees' accounts as per the instruction.

  • Since it is specifically for the purpose of crediting the salary, only salaried individuals whose employer has a salaried relationship with the bank can open a salary account. The employers themselves usually open these accounts for their employees.

  • It offers all the benefits of a savings account and offers the same interest rate like a savings account. A few banks offer slightly different interest rates to their saving and salary accounts.

  • Many banks offer extra ATM cash withdrawal limit, reward points and cashback on debit cards and credit cards, relationship manager for one point contact, etc., benefits to the salary account holders.

  • Unlike a regular savings account, there is no minimum balance requirement in salary accounts.

What is the difference between a Savings Account and a Salary Account?

Difference Savings Account Salary Account
Who can open it? Any person or entity, in individual or joint capacity, can open a savings account. Only salaried individuals whose employer has a tie-up for salary proceedings with the bank can open a salary account.
What is the purpose of the account? The key purpose of opening a savings account is to securely save money along with satisfactory returns and liquidity. A salary account is opened with the primary purpose to receive the salary.
What are the Average Balance Requirements? Each bank has an average balance requirement for regular savings accounts that depends on the bank, location, and type of savings account. There is no average balance requirement for salary accounts. However, the premium salary accounts come with a minimum salary requirement that differs from bank to bank.
What is the Interest Rate offered? The interest rate varies from bank to bank. The interest rate remains the same as a savings account.
Can you convert the account? If you already have a savings account in the bank that has a salaried relationship with your company, you can convert your existing savings account into a salary account. You can request a bank to convert your salary account into a savings account in case of a job change or any other reason. Most banks convert your salary account into a regular savings account if the salary is not credited for three consecutive months.
What are the benefits offered? The bank offers all the basic benefits to the regular savings account. The banks usually offer higher and more attractive benefits to the salary account compared to the savings account.

What are the key benefits of having a separate Salary Account and Savings Account?

1. Keeps your finances organised:

Having a separate salary account and saving account helps you keep track of the money better. Paying your fixed and variable expenses from a savings account will help you keep your finances organised. Nowadays, banks offer several facilities like internet banking, mobile banking, UPI, etc., that simplify financial transactions. For example, by paying your utility bills and insurance premiums from a single account, you will be able to track these expenses better. However, managing all your expenditures from your salary account might make it difficult to track your expenses.

2. Helps you meet your savings goals:

Keeping a separate account for expenditures will help you realise where your money is going as it lets you track your expenditures easily. Moreover, by setting a monthly budget, you can transfer only the required amount from your salary account to your savings account, which will be useful to meet your monthly expenses. It will restrict the withdrawals from your salary account, and the balance amount in the salary account will motivate you to save more every month. In case of an emergency, you can easily check your balance and transfer funds from your salary account through any digital mode.

3. Offers maximum rewards:

As we already discussed, the salary account comes with a host of rewards and cashback on online transactions done through debit cards, credit cards, internet banking, mobile banking, UPI, etc. Your salary account and savings account will probably offer rewards and benefits on different types of transactions, especially if you have these accounts in two different banks. For example, if your salary account debit card offers 5% cashback at a specific electronics store, your savings account might be offering 1% cashback on grocery shopping. By making a wise choice at the time of purchase, you can save a considerable amount of money every month.


4. You can earn more interest:

Although most banks offer the same interest rates on salary accounts and savings accounts, some banks offer slightly lower interest rates to salary accounts. In that case, you should transfer your funds to the high-interest-paying savings account and earn more interest on the account balance. Besides, it is advisable to make a fixed deposit if you have any balance left after your monthly expenses and investments. This will help you earn more interest than the savings account, along with a liquidity benefit. Since the fixed deposit interest rates can substantially differ from bank to bank, opening them with a bank that offers a higher interest rate makes sense. Having an additional savings account will help you choose the right bank for a fixed deposit.

To Conclude:

As we discussed, having a separate salary account and savings account can help you manage your finances better and help you save and earn more. To get the most of these benefits, it is advisable to open a savings account with a bank that is different from your salary account bank. While having these accounts in the same bank can also help you save, the other benefits offered on these accounts would probably be the same, which might not help you get the maximum benefits like attractive rewards, cashbacks, and the difference in the interest rates.


Warm Regards,
Ketki Jadhav
Content Writer


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