Multiple Bank Accounts/Policies – A strict No

Team CrawFin/ Harshal Jawale, CFP^CM

Recently RBI deregulated savings deposit rate and several banks responded to it immediately. Today they offer higher interest rate up to 6% pa for the amount above INR 1Lakh. Anything below INR 1Lakh will receive 5-5.5% pa that is still higher than 3.5% we used to get for many years.

Most of us usually have several Bank accounts, multiple Dmat accounts, Mutual Fund Folios and Insurance policies for the sake of diversification. In this article I will try to cover what are positives and negatives of it.

Multiple Bank saving accounts –

There is minimum account balance with every bank account ranging from INR 1000 to INR 10000. We usually keep more than required money into each of such account. If we can consolidate these accounts into one or two, say one will have most of cash often parked as emergency fund might get 6% pa rate, while second account will have minimum possible cash for our daily usage. Multiple accounts with INR 20-30 thousand in each will get lower interest rate.

Multiple Dmat Accounts –

With every Dmat account there is account maintenance charge of INR 300-500 pa. I have seen people keep opening many Dmat accounts each with INR 20-50,000 because of lack of faith on broker. They simply fail to notice that they are actually paying yearly 3-4% of investment just for maintenance of accounts. Either they need to consolidate accounts or need to invest more, because such charge remains same for INR 1000 or INR 1Lakh or any higher amount.

Multiple Insurance Policies –

Any Insurance policy be it ULIP, Money Back, Endowment, Children’s future plan, Marriage plan or any other fancy name that an insurer may choose in future; if it contains your life cover then it charges you for mortality. Mortality charge is nothing but pure term insurance, but since we are obsessed with return of premium, returns onto it and higher tax saving benefit we are happy to pay higher charges to the insurer. Multiple insurance policies simply mean paying multiple times for ONE single life that you have. Of course it is not exactly 3 times if you have 3 policies but it would still be much higher than what you would have paid with single policy for total sum assured.

On top of it there are admin charges with ULIPs etc that would add substantial cost to your INR 20,000-30,000 premium for the year.

What about diversification? What if my bank/broker/insurer goes bust or falls into some malpractice or does not settle my claim?

Fortunately in Indian financial markets there are enough regulatory systems that control activities of all intermediaries. If you are right in claiming money from your insurer either A, B, or C then you would get it from all of them or else not from anyone. Please don’t fall into such misunderstanding that if insurer A rejects claim then at least insurer B would pay. Process of finding justice is tedious in our country but that remains same even with multiple insurers.

Similarly you cannot take FD with next door co-operative society for higher 1% and hope for RBI to come rescue you in case of any malpractice. You must put your money with large reputed bank for better protective services.

Keeping watch on broker’s activities will solve related issues. You as investor don’t pay attention to SMS/Email sent by BSE/NSE whenever transactions happen in your account, this allows person at lower level dealer to misconduct with your account. When SEBI makes it mandatory for all brokers to send SMS/Email within 24 hours of transaction it is also our responsibility to keep a check. Mere keeping check at times if not all will keep that lower level dealer to stay alert and he will not dare do anything wrong with your account. He just needs to know that you are watching him even if you really don’t. Still in case of any malpractice there are enough systems in place for investor protection.

Wealthy Investments need Healthy Methods!!!