Family Savings - Different Types of Savings, Role of Bank and Post Offices

Savings

 

Savings means, setting aside a portion of monthly income in terms of money. Today's income may be sufficient for today's needs but the future may bring increased need or decreased income or both. Only savings enable one to face future bravely.

 

Savings do not occur on its own. It is the result of careful planning and achieved by denying or postponing some present needs. So to say savings is the result of wise spending plan of the individual.

 

Savings may be temporary or permanent. Temporary savings are designed to achieve immediate goals such as purchasing a household equipment or going for a trip during vacation. Permanent savings are set aside for future security.

The following are the reasons for savings

 

1.     To meet the demands at the time of fall in income during old age, sickness, unemployment.

 

2.     To meet increased expenditure caused by illness, accidents, robbery or household repairs.

 

3.     The desire to buy capital goods or assets like land, house and durable goods such as four wheeler, refrigerator etc.

 

4.     For pleasure trip during holidays.

 

5.     To celebrate functions and festivals.

 

6.     To meet the expenditure on higher education and also for marriage.

 

7.     To invest in business.

 

8.     To gain social status and economic security.

 

9.     To provide a secure life for the dependents.

 

10.                        To attend the social functions like marriages, birth day parties, etc.

 

Savings play an important role in raising ones standard of living and improving the quality of living also. Infact, savings well invested can help to generate more income. Savings give mental satisfaction and the capital to build up the nation's progressive plans.

 

Different Types of Savings

 

1. Individual Savings

 

Individuals have been in the habit of saving in one form or the other. Traditionally people were saving a part of their income in the form of commodities, animals, precious metals like gold and silver.

2. Corporate Savings

 

Corporate savings are exercised by some agencies or companies which highly help in the capital formation of a country (e.g.) Banks.

 

3. Compulsory Savings

 

When the state exercise an element of compulsion or force in making the individuals to save, that is called as compulsory savings (e.g.) Employee's provident Fund, General provident Fund.

 

Factors Affecting Savings

 

The factors such as income, current needs of members, habit for thrift, opportunities available for savings, the provision for future, and the size of the family, the standard of living, the cost of living, the economy of the country and the willingness of family members have a bearing on savings.

 

Institutions which Promote Savings

 

Several institutions are ready to help a person to save periodically by offering various attractive schemes.

 

The Role of Post Offices

 

Post offices have been rendering banking services along with its postal duties. In the post office savings account, an amount of Rupees five and above can be deposited at anytime, but withdrawals are allowed once a week. The deposited amount earns (5.5%) annual interest. The interest is exempted from income tax.

 

The post offices also provide five year and ten year recurring deposit schemes. An amount of Rupees ten and above can be deposited every month in this account. At the end of the period, the capital with 11% interest is repaid to the depositor.

 

Time deposit accounts for 1, 2, 5, 10 or 15 years can be opened in any post office for any amount. This scheme is helpful for those who receive regular monthly income by way of interest.

 

Kisanvikas patras are available in major post offices in the denominations of Rupees 100 and above. At the end of seven years and eight months the amount doubles in this scheme.

 

National savings certificates are also sold in post offices for a minimum of rupees one hundred and above. It qualifies for income tax rebate. It also carries 10% compound interest annually. At the end of six years, the amount together with interest is repaid. The annual interest accumulated is also exempted from income tax as it is again re-invested in the same scheme.

 

National savings scheme account can also be opened in major post offices by depositing a minimum of Rupees one hundred. It carries 8% annual interest (current interest 9%). A maximum, of Rs 40,000/-may be deposited annually. 20% of the amount invested qualify for income tax rebate. Loans are granted after a period of three years from the date of opening the account.

 

For all the post office small savings scheme, gift coupons were given by the government of Tamilnadu and various prizes were provided to the investors. Cash incentive of 1.5% is also available to the investors.

 

Role of Banks

 

The main purpose of the banks is to accept deposits and to lend these deposits to reliable borrowers at a higher rate of interest.

 

Savings bank account is a system where small deposits are accepted. Deposits may be made at any time, but interest is calculated for a minimum period of three to six months. (5 to 6 percent per annum). Withdrawals can be made by presenting the pass book.

In the case of fixed deposit account, the depositor withdraws the deposited amount only after a fixed time. The minimum period is 45 days. The interest rate offered is 10 to 12 % per annum (current interest 7.5% - 8.75%). As the period increases the interest also increases. It is suitable for those who want regular monthly income.

 

The Recurring Deposit scheme, marriage deposit scheme, loan linked deposit scheme, prize deposit scheme, double benefit schemes are the other schemes offered by the Banks for the welfare of the people. Loans at a lower rate of interest are advanced to farmers by the banks

 

Role of Life Insurance Corporation of India

 

Life insurance is a contract between the individual called the insured and the insurance company. Here the insured makes payment of money every year or at different intervals.

 

In return, the company agrees to pay a certain amount after a specific period or at the death of the insured to a third party known as the beneficiary. In the case of the death of the insured too, the family can lead an economically secured life. The premium amount that one has to pay varies according to the age of the insured, the sum insured and the period. Following are some of the various forms of life insurance policies now in force: Jeevan mitra, Jeevan sathi, Jeevan surabi, Jeevan akshay, Asha deep.

 

Unit Trust of India (UTI)

 

This is a public Sector financial institution and offers various schemes for attracting investments from the public. The Unit Trust Offers a safe way for people to invest their money in companies. The Unit Trust buys shares and stocks in various companies. Individuals can buy units from the Unit Trust. Each unit has a face value of Rs.10 and units can be purchased or sold. The income earned is passed on to the unit holders as dividends and capital appreciation. Besides selling units, the Unit Trust has also other schemes such as Unit Linked Insurance Plan (ULIP), Children's Gift Growth Fund (CGGF) and Monthly Income Unit scheme to encourage savings.

 

Shares and Debentures

 

Stock and share are the means by which the individual can become part owner. When a person buys shares, he enjoys certain rights like right to dividend, participate in the profit or in the assets of company when it gets wound up. Shares are also sold and exchanged in the stock and share market. The money invested is multiplied in a short time and it is suitable for those who want to make quick money.

 

A debenture is a document or a certificate issued by a company as a proof of the money invested in the company debentures. The interest is payable periodically till the maturity of the term debentures and is paid along with the capital sum in case of cumulative debentures. Unlike shares, debentures carry a fixed rate of interest.

 

Chit Fund

 

This is one of the oldest methods of savings and raising money. Chit funds provide a ready means of getting a lumpsum while payments are in instalments. There are different varieties known as the lottery chit and the auction chit.

 

Lottery Chit

 

Specific number of individuals get together and contribute a fixed sum every month. The promoter usually gets the first month's total collection. During each succeeding month, the names of persons are written on pieces of paper and one is picked out. Thus the person to whom the chit fund is to be paid is decided by lottery every month.

Auction Chit

 

In this scheme, the monthly collection is put up for auction among the members. The one who bids the lowest amount or offers the highest discount is paid the fund and the balance amount called discount is divided up among all the subscribing members. Next month the successful bidder of the previous month drops out of the auction although he continues to contribute. Thus each member gets the amount once and the last member gets the full amount.

 

Nidhi

 

Nidhis were originally temporary societies of members who contributed monthly a certain amount which was then available as loans to members. The origin of the Nidhi scheme dates back to about 1850, when a fund for officials in Madras was created to save them from the money lenders who charged very high rates of interest. The Madras officials decided to start a fund of their own which would offer needy persons with fixed incomes an opportunity to borrow at reasonable rates.

 

Nidhis now have to be registered under the Indian Companies Act. The objectives of Nidhis are:

 

To afford facilities for saving

To give relief to members from the burden of old debts

To grant loans for special purposes.

 

Loans are given to outsiders also on sufficient security, but preference is given to members, and loans are given at reasonable rates.

 

Provident Fund (PF)

 

This is a compulsory saving scheme for all salaried persons. This gives a lot of financial security to every employee. There are two kinds of provident Fund. They are the general Provident Fund (GPF) and Contributory Provident Fund (CPF). Under GPF, a Specific amount or a certain Percentage of the basic pay is deducted from the salary of the employee every month. It is ideally suited because the accumulated amount is paid to the employee at the time of retirement. One can take loan upto 60% of his collection and return it later from his salary every month. This kind of provident fund is followed for government employees.

 

CPF is a compulsory saving scheme for private company employees. The rate of subscription is uniformly fixed at 10% for both the employer and the employee.