Savings accounts:

i) As per RBI rules, savings accounts earn interest at the rate of 4.5 per cent per annum on the minimum balance kept in the account from the tenth day of each month to the last day of the month. However, the interest is calculated for the entire month. This means that if you withdraw any amount from your savings account between 10th and last day of the month, you will lose interest on that amount for the entire month.

In view of the above regulations, you should try to minimise your withdrawals during the 10th and the last day of the month, particularly during the last few days, as withdrawals towards the month end would nullify the benefit of keeping the money in the account practically throughout the month. Therefore, if possible, try topostpone your withdrawals planned toward the month end to the next month.

ii) By now you would have also realised that savings accounts in reality act more like 21/22 day-fixed deposits rather than a running account. This is because unless you keep the money in the account for the entire 21/22 day period from 10th of the month to the last day of the month, you will not get any interest.

Therefore, it may be advisable to keep most of the money in a 30-day fixed deposit rather than a savings account. For locking your money for only 8-9 extra days, you get a much higher interest on the fixed deposit.

iii) Some banks have now started paying savings account interest on a quarterly basis rather than the conventional half-yearly basis. Since the interest paid to your account at the end of the quarter also starts earning interest immediately after it is credited to your account, you end up receiving higher interest than an account which pays interest half-yearly. Such an account also helps you in planning yourcash flows better.

Fixed deposit accounts:

i) There are two types of fixed deposits -- (a)Cumulative and (b) OrdinaryIn cumulative fixed deposits, interest earned at the end of the quarter is re-invested at the same interest rate. The depositors get the principal along with the interest accrued at the end of the maturity period of the deposit. In case of ordinary fixed deposit, the interest is paid to the depositor at the end of every quarter. The depositor gets the principal back at the end of maturity period.

Whether a depositor should choose cumulative or ordinary fixed deposit depends largely on his cash flow requirements. In case the depositor needs regular interest income to meet his personal consumption needs, he should choose ordinary deposit. If he does not need interest income regularly, he can choose either cumulative or ordinary deposit.

Assuming a depositor is not dependent on interest income, which type of deposit should he choose? My recommendation would be:

i) Choose acumulative deposit when the interest rates are high. If you believe that the interest rates are close to the highest, choose the longest period giving the highest interest. This way you will ensure that you not only lock in your principal at a high interest rate for a long period you will also continue to get a high interest rate on the quarterly interest income accrued to you.

ii) Choose ordinary fixed deposit when you believe that interest rates are likely to go up in future. This way you will ensure that in case your forecast about interest rates was right, you will be able to invest the interest income at higher rates in future.

Also, when interest rates are low, choose fixed deposit with shorter maturity periods as it may not be advisable to lock in your funds at low interest rates for a longer period.

Savings-cum-fixed-deposit accounts: While the tips discussed above will enable you to get higher returns on savings or fixed deposit, the best returns are provided by savings-cum-fixed-deposit accounts being offered by some banks. These accounts provide an unmatched combination of high returns and instant liquidity. They come in two variants:

i) Overdraft limit against fixed deposits

ii) Multi deposit accounts

Both the above accounts enable you to earn high interest rates, yet do not lock in your funds over a long period.

One last tip -- choose your bank carefully. A good bank should be able to provide you:

i) Safety of funds

ii) Competitive interest rates

iii) Good customer service

iv) Proactive advice on what product would suit you best depending on your individual needs

Go ahead and make the most of your bank account now.