Savings bank account vs payments bank account: The pros and cons you should know

Adhil Shetty

September 1, 2018 saw Prime Minister, Narendra Modi, launch the India Post Payments Bank to include those living in rural India under the fold of the formal banking system. With 3,250 access points and 650 branches across the country, its aim is to provide basic financial services to everyone. With 5 other payment banks in the country attracting the public, knowing how a normal savings account with your neighbourhood bank fares against a savings accounts with a payments bank can be a game changer. Take a look.

Interest on offer

If you open a savings account with a payments bank, you will earn an interest of at least 4% on your deposit as mandated by the RBI. However, as of now, payments banks are offering interest up to 7.5%, making it a lucrative option. On the other hand, when you pick a savings account at a bank, you earn around 5% as interest, going up to 6% or 6.25%. If you pick a zero balance savings account, your earning will be similar, capped at 3% or 4%.

Minimum amount you must deposit

Most payments banks in India allow you to open a zero balance savings account. This means that you don’t have to deposit a minimum amount to open one. Many other banks also offer savings accounts with the same facility.

Minimum amount you must maintain

When it comes to an account with the newly launched India Post Payment Bank, you don’t have to worry about maintaining any minimum balance, as is the case with most other payments banks in operation. However, in a savings account with a bank, you have to abide by the minimum balance stipulations stated by your bank. This varies from bank to bank, and also the type of savings account that you choose. If you select a zero balance savings account, you will not have to maintain any minimum amount.

Maximum amount you can hold

In this regard, all payment banks allow you to hold a maximum of Rs.1 lakh in the account, as per RBI regulations aimed at protecting customers. But, if you have a post office savings account in addition to one with the India Post Payment Bank, for instance, you can link them. Then, if at the end of the day the balance in your India Post Payment Bank account exceeds Rs.1 lakh, it will be transferred to your post office savings account. If you have a savings account with a well-known payments bank, however, any amount over Rs.1 lakh will be transferred into a fixed deposit with a partner bank. On the other hand, there is no limit or restriction on the maximum amount when you choose a regular savings account from a bank.

Availability Of ATM/Debit Cards

As per RBI regulations, payments banks do have the authority to issue debit/ATM cards. While most offer you a digital card when you open your account, you can make a request for a physical card as well. That being said, others like the India Post Payment Bank aren’t issuing debit/ATM cards as of now. However, a regular savings account typically comes with an ATM/debit card.

Limit on withdrawals

Depending on the type of savings account you choose with a bank, you will be allowed a fixed number of free withdrawals, after which you will have to pay a fee regardless of whether it is your bank’s ATM or another bank’s. When you choose to open a savings account in a payments bank, the terms differ slightly. Some operate like banks, offering you a fixed number of free cash withdrawals, while others stipulate how much you can withdraw for free in a month. For example, a well-known payments bank service offers three free withdrawals, whereas another allows you to withdraw up to Rs. 25,000 per month.

Additional financial services that you can enjoy

When you open a savings account with a bank, you can approach them at a later date for a loan, overdraft or credit card, or to make investments on your behalf. But, when you open a savings account with a payments bank, you can’t do so. As per the law, they can’t issue a loan or a credit card. Also, both options allow you to view statements, account balance and transfer funds online, or through an app, but payments banks may offer you extra perks from time-to-time, be it free talk time, cashback or personal accident insurance cover of up to Rs.1 lakh.

So, if your needs are restricted to basic banking facilities, or you wish to teach your child how to use a bank account, opting for a payments bank account is ideal. For advanced banking and financial services, choose a public or private sector bank.

The writer is CEO, BankBazaar.com