Contingency Amount – Where to park

CONTINGENCY AMOUNT - WHERE TO PARK

According to Wikipedia “A contingencies fund or contingency fund is a fund for emergencies or unexpected outflows, mainly economic crises”.

Most of the persons in India don’t have any contingency amount or buffer amount in their account. The main features of this money are it is to be easily liquidatable which means during our need we can easily access the money.

Considering the easy liquidity, a savings account is a perfect place to park the entire contingency amount. If any other account is available where from we can easily access the money, we can put the amount theirs also.

More return is preferable for saving contingency, only after meeting the primary requirement of liquidity.

  1. I suggest putting the money in a savings account where the interest rate is more. One benefit of those bank accounts is the interest earned will be tax-free as the earnings from savings account up to Rs 10000 is tax-free.

    Read another article How to get the highest interest rate on savings accounts to explore more. 

 

  1. At present, you can put the money into a term/ fixed deposit if you have online banking facility which has also good liquidity, but the tax advantage will not be there. Another point is the premature withdrawals always attract some penalty.

Visit https://www.bankbazaar.com/fixed-deposit-rate.htmlEmergency (Source: Bankbazar.com) to know the return on investment. Remember term deposit account should be mapped online and ensure anytime withdrawal before investing.

  1. All the banks are equipped with auto sweep facility which can enable your money to deposit in a automatically created fixed deposit account to earn more interest if your savings account has more than the limit amount which you have already specified.
  2. There is another option available called Digibank savings account. Digibank is a paperless banking by Singapore’s largest bank, DBS Bank. It has offered 7% interest rate for Rs up to 1 lakh in the savings account.

Example:

For Axis Bank Customers, there is an account called Encash 24. This account will be linked with your savings account. If you have more than Rs 25000 in your savings account, the excess amount in multiple of Rs 5000 will be shifted automatically to the deposit account which will give you the return at higher interest rate.

The money in the deposit account can easily be reversed when your balance is lower than RS 25000 in your savings account. The tenure for the Encash 24 scheme can be flexible for a minimum period 6 months up to a maximum of 5 years.