Jayanta Majumdar started investing in equities and mutual funds a couple of months ago. That’s when he discovered that the facilities his bank gives him as a priority customer are much less than the interest he forgoes by maintaining an average quarterly balance of Rs 1 lakh in his savings account.

Majumdar has an account with a leading private sector bank that offers personalised priority banking services to customers who maintain an average quarterly balance of Rs 1 lakh.

The privileges include:

• Exclusive bank branch or lounge within a branch
• A relationship manager
• Free doorstep banking services such as pick-up or delivery of cash, draft or pay order
• International debit card
• Preferential pricing of loans, foreign exchange
• Free ‘at par’ cheque for outstation payment and anywhere banking facility
• Discounts on demand draft and other service charges such as stop payment or standing instructions, free outstation cheque collection, higher limit for cash withdrawal from ATM

Snob value

Majumdar enjoyed a snob value in all these privileges but that was till he became more investment-oriented.

Now he is evaluating whether these privileges really serve his purposes for he rarely needs these free services for which he has to maintain Rs 1 lakh in his account that fetches him an annual interest income of Rs 3,500 only at 3.5 per cent.

Go for the regular

Had he opted for a regular savings bank account, Majumdar would have to keep a minimum balance of Rs 5,000 and the excess he could put in a bank fixed deposit at a higher interest rate of 9.5 per cent.

By choosing a combination of a regular savings account and a fixed deposit he would have earned at least Rs 9,531.

Does it merit losing out Rs 500 every month (or Rs 6,000 every year) for certain free services that one rarely uses?

Is it worth it?

Banking services such as issuing of demand drafts, outstation cheque collection, anywhere banking and the issue of cheque leaves in excess of a free limit come at nominal charges for regular savings account holders. One does not need to pay Rs 500 a month for such banking services.

Why the rush?

Then why are banks increasingly offering tierised accounts with add-on benefits? The reason is simple. Banks need to raise their low-cost deposits to support the galloping growth in their advances. Savings and current accounts comprise the low-cost deposits for banks — while savings bank accounts attract an administered interest rate of 3.5 per cent per annum, current accounts earn no interest. So, it is but natural that banks could mobilise more low-cost deposits only by offering value-added and free services to their savings bank and current account holders.

But since these services also entail some cost, they ask for a higher minimum balance.

Value-added savings

Almost all banks, both private and public, have recently started offering different grades of value-added savings and current accounts — classic, power, silver, gold and platinum. The minimum balance as well as value-added services and benefits increase as one goes up the account ladder. If the minimum quarterly balance for a classic is Rs 5,000, it is Rs 10,000 for power, Rs 25,000 for silver, Rs 50,000 for gold and Rs 100,000 for a platinum account.

The number and extent of add-on benefits also increases accordingly. Uco Bank offers free personal accident cover between Rs 1 lakh and Rs 3 lakh depending on whether you have a silver or a gold account. It also offers a higher discount on service charges on demand draft and pay order and higher limits for anywhere banking for gold account holders than silver account holders. Bank of India, Corporation Bank and Syndicate Bank also offer such accounts.

Anywhere banking

With banks, particularly the public sector ones, now on a spree to roll out their core banking branches before March 31, 2009, anywhere banking will soon become a low-cost or no-cost service. Once banks have their maximum number of branches on CBS, the cost of collection of outstation cheques, demand drafts or pay orders will also decline significantly.

Offsite ATMs as well as low-cost shared ATM networks, such as Cashtree, have already reduced the cost of round-the-clock banking and now a customer of Bank A can withdraw money from Bank B’s ATM, both of which are on Cashtree network, by paying a service charge as low as Rs 10.

Value-added accounts cost you more at a time when the general rate of interest in rising. There is no such thing as a free lunch, they say.