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.
- 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.
- 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.html
(Source: Bankbazar.com) to know the return on investment. Remember term deposit account should be mapped online and ensure anytime withdrawal before investing.
- 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.
- 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.
I am a regular reader of your blog. But didn’t understand why you are pressurizing so much on contigency amount. As i beleive Nowadays almost everyone is having credit cards which can fulfill your sudden demands and also gives you atleast 15 days to pay the bills. So instead of parking money in savings account it is better to invest in some other places where it can attract more returns.
I am giving so much importance to this because now a days we are almost exhausted after paying our EMIs. Credit card loan is very costly and so try to avoid that. More over do you think 15 days is enough to arrange money? From where you will arrange? You have to take a costly personal loan which is again a burden.
I m not talking about credit card loans. The credit given by credit card companies are almost 2-3 times of your salary.
You have explained earlier it is needed in emergency situations. Now as far as I believe these kind of situations are hard to define in numbers. Lets be practical and assume it comes once in a year time. So for this you are suggesting to park 3 months salary in a savings bank account??
For an avg individual it will be around 1.5 lac rupees. Is it not better to buy some precious metals or investing in good stocks.
It may incure loss but probability to gain is much more. Is not not worth to take the risk??
Dear Prabhat
Thanks for your comments.
My point of view is slightly different. One should not invest in equity considering short term because it is highly risky. You may lose your capital.The same principle is for precious metal also. You can open a debt mutual fund where there is no risk of capital loss as well as it is liquidable in one or two days.
Thanks & Regards,
Suman