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Economy Nov 9, 2012

How to increase savings by plugging leaks

By Arjun Parthasarathy

The leakage of money from your savings can be pretty high if you are not careful about it. Leakages are money lost on paying unnecessary charges to your financial service provider including your bank, letting your money lie idle in a savings bank account or current account and investing in unnecessary financial products that are meant to make money only for the product manufacturer and the distributor of the product. If you look at the leakages in your savings you will find that you could have done a lot of things by just plugging the leakages.

How do you plug the leakages from your savings?

Start with the basic, your bank account. Banks make money from your carelessness. For example, you will suddenly find a service charge for not maintaining a minimum balance in your account. Your account would have had a no or low minimum balance requirement for a long time and the bank would have arbitrarily upped the balance. The minimum balance would have been introduced with a mail informing you about the change. The charge could have been avoided if you kept a keen eye on your mails from your bank or on some such notifications. Look at your bank statements carefully every month for such charges.

Money lying in low-interest bearing savings accounts or lying in no-interest bearing current account is a major leakage in your savings. Getty Images

Money lying in low-interest bearing savings accounts or lying in no-interest bearing current account is a major leakage in your savings. Rs 100 in a savings bank at 6% and a fixed deposit at 9% gives you Rs 3 difference. This Rs 3 is a leakage from your savings. Why should the bank gain from your savings? If you have an idea of your liquidity requirements you can easily earn more from your money lying in your bank account.

Investing in wrong financial products is a very high source of leakage from your savings. Insurance policies are the worst form of leakages as costs can be as high as 50% if you are not careful. Why lose money in costs for a financial services product as that money could have been invested elsewhere. Mutual fund products that have no place in your portfolio eat into your ability to earn better returns elsewhere. For example, a capital protected fund would have given you no returns at all or much less returns than even a liquid fund. The lower returns earned from a structured fund is a leakage from your savings. Look at cheap and simple options when investing in financial services products.

On a day-to-day basis, you can save money if you are careful in handling transactions. Do not carry out fund transfers after banking hours especially in the weekend. Your account gets debited but the beneficiary account gets credit only on the next business day. The bank enjoys the float. Try to keep money in your bank over the weekend and draw cash for any expenses at the beginning of the week. In that way, you earn two days of extra interest on your account balances.

The golden rule you must follow is that when your bank manager treats you extra nicely you must worry as you must be a valued client for the bank - read your savings must be earning money for the bank in some form or the other. Similarly, any financial service provider showering you with gifts and extra attention is also to be looked at warily.

Count your money earned from your savings and make sure that you get the most out of your savings. After all, it is your money and if you do want to give it away freely you can do so for a needy cause rather than give it to your financial service provider.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com a web site for investors.

by Arjun Parthasarathy

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