Savings Tip: Save on service charges

With airfares becoming unaffordable once again and new airports under development in different cities charging UDF ( in addition to the already high fares ), we middle-class people will have to rely on our "garib rath" the Indian Railways.
Thankfully, now IRCTC offers online booking facility for train tickets and you don't have to stand in queue for hours to get a reservation ticket. But this facility comes with some additional charges ( obviously! )

When you buy a ticket from IRCTC, there are 3 costs that you incur:
1. The ticket fare and reservation cost ( this goes to the Indian Railways )
2. The IRCTC commision ( depends on the class for which ticket is booked, for Sleeper it is Rs. 10 and for Third AC is it Rs. 20 and so on. IRCTC also pays some service tax out of this, but that is not relevant here )
3. The service charges payable to the payment gateway/bank.

We cannot do anything about the first two costs, but the third one depends on the bank you use to make the payment.
Let's have a look at the service charges of different booking for train ticket booking. Go to IRCTC Terms & Conditions and scroll down to section 2.1

This section is divided into two parts:
- Payment by Credit Cards
In this section you will notice that almost all payment gateways charge around 1.8%, but the Axis Bank payment gateway charges only 1.65%
So when paying by Credit Card, you can choose Axis Bank payment gateway for lower charges.
Update 1: A reader has faced problem with Axis Bank with respect to refunds, and he advises not to use Axis Bank payment gateway.

Update 2: Chinmay Shah has suggested to use Kotak Credit Cards for railway ticket booking. Kotak Credit Cards have the facility of railway surcharge waiver which means no payment gateway charges for Kotak Credit Cards. I'm not sure about the annual fees and other charges of Kotak Credit Card, so do check them out before getting yourself a Kotak Credit Card.

- Payment by Direct Debit
Most of the banks, charge a constant amount ( 10-11 rupees ) but there are some who don't levy any charges. These banks which don't levy any charge are much better than any credit card payment gateway, as the third cost ( in the list above ) is zero now. The list of banks which don't charge any amount for payment by Direct Debit are:

• Bank of Punjab
• Punjab National Bank
• ABN-Amro Bank
• Federal Bank
• Syndicate Bank
• IndusInd Bank
• Karnataka Bank
• Bank of India
• Bank of Baroda

So, if any of these Banks are near to your house, do consider having an account in them with Internet banking facility. Then you can book railway tickets through internet without paying any service charges to the Bank. I personally use Punjab National Bank and till now I haven't faced any issues with its Internet Banking site.

Savings Tip: Flexi RD

Everyone must be aware of RD ( Recurring Deposit ) wherein you deposit a fixed amount of money every month which accumulates into a large sum ( along with interest earned ) over long term ( usually 3-5 years ).

I would like to tell you about another innovative product offered by some PSU Banks which, although known by different names in different banks, I would call as Flexi RD (FRD). I am not aware of any private bank ( like ICICI, HDFC, Kotak Mahindra etc. ) offering such a product. Let me know if any private bank offers it.

Let's have a look at its features:
1. Period of deposit can be chosen at will. But some banks have fixed tenures ( of say 3 years ) for such flexi RD schemes.
2. Rate of interest is the same as that offered for a fixed deposit of the same duration.
3. The monthly deposit can be upto 10 times the initial deposit. Let me try and explain this with an example, say your first installment was Rs. 500/-
Subsequent deposits in the FRD have to be a minimum of Rs. 500/- and maximum of Rs. 5000/- i.e. you may choose to vary the deposit amount provided it remains within the maximum and minimum limits for such deposits
Eg. 1st month - Rs. 500/-
2nd month - Rs. 2500/-
3rd month - Rs. 1000/-
4th month - Rs. 3000/-
5th month - Rs. 5000/-
6th month - Rs. 4500/- and so on.

4. Each of your deposits will continue to earn the same rate of interest, which was decided at the time of account opening.

Now let me explain how you can use FRD to your benefit:
- Open a FRD account in the bank paying a small amount as the first installment. This first deposit must be an amount that you can comfortably pay every month without putting any strain on your finances. For somebody earning a salary of 20,000/- to 30,000/- , an amount of Rs.500/- would be decent enough to start an FRD.
- Open the account somewhere around the end of month ( preferably after 25th ) so that the deposit due date falls near the end of the month. I will tell you the reason for this later.
- Since your initial deposit was Rs. 500/- your limits are as follows:
Minimum : Rs. 500/-
Maximum: Rs. 5000/-
Towards the end of the month, you may have some amount left in your salary account which you can deposit in this FRD account ( only subject to the limits above ). Months during which your expenses are higher, you just contribute the minimum of Rs. 500/- , but during months when your expenses were lower you could deposit a higher amount to FRD account.
Thus, by depositing a flexible amount every month over a period of 3-5 years you will amass a substantial amount on maturity.

Above were listed all its advantages, but I would advise you to keep the following also in mind:
1. The interest earned in FRD is taxed as part of your income (similar to a fixed deposit )
2. Liquidity may be a concern, some banks may not allow pre-mature withdrawal from FRD accounts before maturity ( or may place some other restrictions ). So don't keep your emergency funds in a FRD account.
3. If you happen to be out of town for some time, please make sure that some arrangements are in place to pay the FRD installments in time. Otherwise the bank may levy some fine. This isn't a major concern with PSU Banks, since charges levied by PSU banks still aren't that high.

I would list list below the names by which it is known in some banks:
1. In Corporation Bank it is known as Corp Recur which has a fixed tenure of 3 years.
2. In UCO Bank, it is known as Lakshmi Yojana
3. In Punjab National Bank it is known as Swecha Jama Yojna

Please comment below, if you were already aware of this scheme and the different names by which it is known in different banks.

Leaders & Laggards among Public Sector Banks

With the era of new age banking dawning, the PSBs ( Public Sector Banks ) have also woken up from their slumber. They have finally woken up to technology-enabled banking. Some have taken the lead, others lag:

State Bank of Patiala (SBP) - First PSB to have all branches CBS-enabled. Yes, you read it right every branch of SBP even in the tiniest of villages is CBS (Core Banking Solution) enabled, which means that you can operate your account from any of its branches. Although this would cease to matter anymore, since SBP is going to be merged with SBI.

Corporation Bank (Corp) - In terms of technology adoption, Corp has always been the leader. Whether it is internet banking, debit cards or the recently introduced mobile-commerce, it has always been the first PSB to adopt it. Even the website of this Mangalore-based bank looks decent enough ( better than most PSBs including SBI ).

Karnataka Bank & Andhra Bank - Not to be left behind are these two banks from the South, who have a decent network of ATMs and CBS branches ( atleast in the South and are trying to expand in the North India as well ).

Punjab National Bank (PNB) - Most ( if not all ) branches of PNB are CBS-enabled and one good thing about PNB is that account-holders at a CBS branch by default get a payable-at-par cheque book. Though they have been a laggard on the ATM front. I haven't seen many of their ATMs other than at branches. They have a tie-up with Geojit for providing depository and trading services.

State Bank of India (SBI) - SBI has stepped into so many domains at the same time that it has become almost unmanageable ( atleast for its branch managers ). SBI ( along with its subsidaries ) does have the largest network of ATMs in the country. Recently they have introduced the concept of 3-in-1 trading account in partnership with Motilal Oswal.

UCO Bank & Union Bank of India - After being in financial trouble for few years these two banks have not only improved their balance sheet positions but their services as well. UCO Bank has been rapidly expanding, opening up new branches. You can find ATMs at almost all of their urban branches.

Among the PSBs which haven't shown any willingness to upgrade, Indian Bank tops the list. Its branches, still give you that feeling of a dingy government office (the image which is normally projected in hindi movies).

Hope some day our PSBs would be able to measure upto the services offered by the international banks [ but should not measure upto their charges ;-) ].

Update : Karnataka Bank is not a PSU Bank. Thanks Narsi!