. Higher earnings
How much money should you keep in savings account? Financial planners advise to keep up to 3 months of expenses as contingency fund. However this amount would differ on a person-to-person basis as per the individual risk appetite. Let's take a case study - Ramesh Kumar has an impressive education background and is quite successful in his software career. Within 3 years of working, he takes home a decent salary of Rs. 80,000 per month. His social status requires Rs. 40,000 as monthly expenses and he is saving Rs. 40,000 per month, which he prudently invests for future. Today, he maintains Rs. 1,20,000 in his salary account as contingency funds. Since this money is meant for contingency situations, liquidity is important and hence he doesn't park this money in fixed deposits. Being a savings account, the bank offers 3.5% interest rate and he earns Rs. 4,200 annually.
Ramesh can earn Rs. 4,500 extra annually by splitting his contingency fund in his salary account & b2 savings account. Here is an illustration -
Monthly expenses Rs. 40,000
He saves 3 times of his expenses as a Contingency fund Rs.1,20,000
Cash contingency fund in salary account (@3.5% per annum) Rs. 20,000
Other contingency fund in b2 savings account (@8.0% per annum) Rs. 1,00,000
Total earnings per annum Rs. 8,700
Incremental earnings per annum Rs. 4,500
