About Savings.

About Savings - Money Matters.

In this post, we will discuss about our savings. As earning money is important, so is saving money. There is a direct co-relation between earnings and savings. We can save money only when we earn. If we don't earn, we can't save for long. In the same way, to earn money, we have to save. The popular saying, "A penny saved is a penny earned" vindicates this fact.

Meaning of Savings.

When we say 'Savings', we mean safeguarding money from being spent unnecessarily. Saving means conserving money for future use. People save money for many reasons. The main reasons are:

• For meeting expenses in near future.
• For some specific purpose or goals like purchasing an automobile, buying jewelry, child's higher education, marriage and so on.
• For the purpose of long term savings.

Whatever be the purpose, saving money is the only way to meet future needs. Money gets spent if not saved properly. As income is never guaranteed, saving money is the only way to secure future.

Importance of Saving.

Money is flowable by nature. It never stays in one place for too long. It does not have any permanent bearer. The moment it reaches our hands, it tries to move out. We prosper when we have it and we suffer when it leaves us. That's why, its so important to hold it up.

We cannot stop money from flowing out. That's its characteristics. It will flow in and will flow out of every hand, every organisation and everything else that we can think about. When money reaches our hands during the course of its long and unceasing journey, we should try to hold at least a small portion of it well before it leaves us. If we don't do that, we will become poor in future. To hold money up and to keep it safe for future is what savings is all about.

Saving Money in a Safe Place.

As money never remains in hand for too long, it is necessary to save it in a safe place. If we keep money in our home, then also it is likely to get expended as we have easy access to it. Accessibility of money increases our tendency to spend. That's a human psychology. Therefore, it is essential to save money by keeping it safe in a place other than our home.

We can save in many ways. The most popular and an important one is the bank. There are other options too. But nothing replaces a bank as it has some unique features.

Saving in a Bank.

Banks are the most appropriate place to save money as they are secure, flexible and rewarding. They are secure because banks maintain high levels of security to protect our money. They are flexible because we can withdraw and deposit money at any time as we wish. They are rewarding as banks pay us the interest on our deposits.

A bank offers many options for saving, like, a savings bank account, recurring deposit account and fixed deposit account. Among them, the primary and also the most useful one is the savings bank account.

Savings bank account, Recurring deposit account and Fixed deposit account.

(1) Savings Bank Account: A savings bank account, as the name suggests, is an account for saving money for both - short and long period of time. We get the freedom to transact as per our needs. As savings bank account comes with the facility of a debit card, we can deposit and withdraw money as need arises through teller machines of any bank.

We can transfer money to anybody from this account through a computer or mobile phone. Most banks provide facilities like net banking or internet banking, which enables quick transfer of money to the accounts of beneficiaries. Mobile applications also help us to transfer money from our phone. All these facilities make the savings account unique.

(2) Recurring Deposit Account: A recurring deposit account also helps us to save. We have to select an amount and a tenure at the time of opening an account. The amount that we select has to be deposited every month on or before the due date. The due date is the date on which the account is opened and that of the first deposit. Example: If we open an account on May, 05, then the remaining deposits will have the due date as 05th of every month. When we deposit money till the end of the tenure, we get the entire deposited money and its interest. In recurring deposits, we get an interest of around 5% to 6% annually.

(3) Fixed Deposit: A fixed deposit is yet another option for saving. In this, we have to deposit money only once and wait for it to mature. This account too, has a tenure. We have to select the tenure as per the available options and deposit money in lump-sum. A fixed deposit is particularly helpful when there is surplus cash and when the liquidity requirements are not there for some consecutive years.

Saving through Post Office.

There are many ways to save and most of them are worth considering like the post office saving schemes. As post offices are run and managed by the government, the schemes are more welfare oriented for the general public. One such scheme is the post office savings account which functions like a savings bank account.

We can open a savings account in post office and can get all the benefits that a bank offers. We get passbook, cheque book, debit card and even internet banking facilities with this account. Even people with low income can open this account. The required minimum account balance is low - around Rupees 500/- and we get an annual interest of 4% which is good in comparison to most banks.

Saving through Life Insurance.

Life insurance is another way to save in which life cover is an inbuilt advantage. Life insurance is a good medium for saving. When we buy a life insurance policy, apart from the assurance which the policy provides, our savings get build up.

Endowment plans have a good component of savings in them. In life insurance, we save our money in the form of premiums which primarily guarantees cover for life. To get the benefit of savings, we have to pay premiums till the end of the premium paying term.

Misconceptions about Banks, Post Offices and Life Insurance.

There are people who argue about the relevance of banks, post offices and life insurance when it comes to saving. Their arguments are based on the fact that banks, post offices and life insurance provide very low interest on returns.

• A savings bank account gives a return of around 3% to 4% annually.
• A recurring deposit offers 5.5% to 7% per annum and so do fixed deposits.
• The returns from post office saving schemes are more or less the same.
• Life insurance too provides an interest rate of around 4.5% to 5.5% annually.

If we compare it with other investment options like equity shares, the returns are low.

The above arguments are true but there is a counterpoint to that. Every product has some drawbacks but that does not mean that they are bad or inferior. There is a logic behind every savings product. How can a product offer returns more than other products for same amount of money? Logically, it is impossible. While some products may give higher yield, they won't be consistent always.

A product that is high in yield may have some risks. An obsession for high returns has landed many people in trouble and so we should be careful about that.

National Pension Scheme.

The National Pension Scheme (NPS) was introduced to provide pension to individuals irrespective of their occupation. Anybody who is above the age of 18 years and below 65 years is eligible to joint this scheme. In this scheme, you can deposit money as per you capacity and can get the benefit of pension if your total deposit reaches the threshold of minimum desirable pension. It is a retirement scheme. People should invest in this scheme and secure their pension after retirement.

Objectives of Saving.

The objective of saving is to save money in a risk free manner with reasonable returns. Banks and post offices help us to save and so do life insurance. There are many schemes for saving which are administered by the government which are good too like the National Savings Certificate (NSC), the Public Provident Fund (PPF) and many more.

We have to choose savings products by considering our needs. Systematic saving helps in building resources for future. We can go for higher investments when we have enough savings.

Difference between Savings and Investments.

The difference between savings and investments is that the former is primary and basic which involves little amount of money whereas the latter is more advanced and involves large sums of money. To put it in short, savings usually start and progress with less money and investments require huge amounts of money to get started and to get going.

The other difference is that, savings rely only on financial institutions like banks, life insurance companies, post offices etc., whereas investments have a wider horizon. Investments could be made in fixed deposits, life insurance, real estate, gold, shares, mutual funds, profitable businesses and so on. The differences in their returns are therefore obvious.

Improving Savings.

We can improve our savings gradually. We all know how much we earn every month. Saving a small amount of money from our earnings will make a difference in the long run. We should save some amount of money every month no matter how small it is. We should make it a habit. Just as many tiny drops of water fills up a pot over some time, so do small amounts of money become a big reserve when saved every month.

If we are poor today, it may not be because we have earned less; it could be because we have saved less.

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