Smart Ways to Save for Short-Term Needs: A Complete Guide | financial freedom - 6

 EPF New Procedure..!

Recently, changes have been made in the procedures for withdrawing money from the Employees' Provident Fund, which is the main investment made during retirement. Previously, to withdraw money from the deposit fund for reasons such as buying a plot, building a house, and repaying a home loan installment, the beneficiary had to have been in service for at least 5 years. A maximum of 36 months of investment paid on behalf of the employee and the company can be withdrawn. Currently, only those who have been in service for 3 years can withdraw money for the above reasons. 90% of the money accumulated in the Employees' Provident Fund can be withdrawn. This change has been brought to make the worker's dream of owning a house come true.

In addition, for emergencies, a facility to immediately withdraw Rs. 1 lakh from the Employees' Provident Fund through UPI or ATM has also been introduced. However, for a peaceful retirement life, investment in the Employees' Provident Fund is very important. So it is better to think carefully before taking money out of that package and make a decision.

Now let's look at other ways of investing. Before learning about investment, you should learn about savings.

Saving is about earning income with money for a short period of time. On the contrary, investments have a long maturity period.

We should choose savings or investments based on the following three factors.

1) How much income will you get for the money you save/invest

2) How quickly can you withdraw the money

3) Are there any tax benefits on the income you receive?

In the previous section, we saw that the EPF pension benefit we saw earns 8.25% interest per annum. We also saw that tax benefits are also available in full. But pension plans have a long maturity period. If a person joins the job at the age of 25, he can withdraw the money only when he retires at the age of 58 or 60. It is because of such a long maturity period that pension benefits get additional income and tax benefits.

We are going to look at various types of savings/investment plans in detail. We are going to analyze each plan based on the above factors such as how much income is available, whether there are tax benefits, and whether the money can be withdrawn easily.

 

Savings plans:

As we have already said, the main benefit of saving is in quick withdrawal of money. Everyone should save money for three months for family needs. The proverb "If you see a stone, you will not see a dog. If you see a dog, you will not see a stone" applies to savings and investments as well. If you can withdraw it immediately, you will not get tax benefits and additional income. This rule applies to all savings plans.

In savings plans including fixed deposits, the investor has to pay tax on the interest income according to the income tax bracket in which he falls. That is, in stock market-related projects, there is no tax on profits up to Rs. 1.25 lakh in a financial year for a long period of more than one year. It is enough to pay 12.5% tax on profits above that. However, there may be losses in stock market-related projects in the short term.

Savings Account:

Most people first open a savings account in banks. Many leading banks offer incentives that do not require any minimum balance. In some banks, the average minimum balance can be opened only if the balance is between Rs. 1000 and Rs. 10,000.

Various facilities like locker facilities, special customer service center officers, free services are available to those who have excess balance in banks. As we said earlier, since money can be withdrawn immediately, savings accounts are only likely to earn an income of 3% to 4%. If you inform the banks in advance, you can withdraw even one crore rupees immediately from savings accounts. Savings accounts are the primary scheme among schemes that provide instant money back.

But it should be noted that even if more than Rs. 10 lakh is deposited in banks in cash or withdrawn in cash in a year, that information will go to the Income Tax Department based on one's PAN number.

Additional interest on additional amount..!

Some banks offer higher interest income on savings accounts. In those banks too, they offer additional income only if you keep additional amount in your savings account. For example, if someone keeps Rs. 7 lakh in their savings account on an average per month, the interest will be fixed at 3% for the first Rs. 2 lakh, 5% for the next Rs. 3 lakh, and 6% for the amount above that. Income from savings accounts will be included in their income brackets and income tax will be calculated.

Since there is no income tax on income up to Rs. 12 lakh for the current financial year 2025-26, most people will not have to pay tax on the income from their savings accounts. Also note that if you do not maintain the minimum balance in your savings accounts, you will have to pay a penalty.

It is better to add only the amount required for minimum emergency expenses in your savings accounts. Adding additional money to your savings accounts will not provide income that exceeds inflation. Also, 30% TDS will be deducted on the income earned by overseas Indians when they open their NRO savings accounts. You can get a refund only if you file your income tax return. It is sufficient to maintain a minimum balance in such accounts. Keeping money in bank notes at home is also a form of savings. But if you keep money at home in cash, there is a possibility of money being stolen. Therefore, keeping money in savings accounts is safer than keeping money at home and you will get a lower income.

Even if banks go bankrupt, the money in savings accounts is insured up to a maximum of Rs. 5,00,000 (PER PAN, PER BANK). Therefore, savings accounts are considered a very safe scheme. Banks also find it beneficial to have extra money in savings accounts. One of the important factors that analyze the financial health of banks is CASA (Current and Savings Accounts).

Overdraft facility..!

Banks offer overdraft facilities for some types of savings accounts. This facility is provided depending on the customer's salary, credit score and the company they work for. Using this facility, you can get instant loans up to the allowed amount at the time of need. When taking such loans, the interest rate is charged only based on how much loan and for how many days.

The overdraft facility is likely to have a maximum interest rate. On average, overdraft loans charge interest of 12% - 24%. Therefore, people who need this facility should use it only for a short period of time.

Also, many people open multiple savings accounts in banks. When they do so, it becomes difficult to maintain those accounts. A maximum of 2 - 3 savings accounts are enough for a person.

Liquid Mutual Funds:

Liquid Mutual Funds are a plan that provides a little more income than savings accounts. Money can be withdrawn from these accounts in one business day. Some companies credit the money to the customer's bank account on the same day (up to Rs. 50,000) if the money is requested before 3 pm on working days.

This allows you to withdraw money immediately from liquid funds like savings accounts. There is no tax benefit on the income earned in this scheme. If you keep a part of the money saved for immediate cash needs in a bank savings account, another part in liquid fund schemes, and a small amount at home, you can easily meet emergency expenses.

We have seen ways to save money safely in this section. In the next section, you will find ways to invest money.