The number of Indian financial bloggers are few and far away, and when you search for financial information you might hit more U.S. based bloggers who tell you about their experiences. Unfortunately some concepts just don’t apply here – perhaps for the reason that our financial system is created differently – here’s a few instances where things are different.
Checking and Savings accounts
Ramit Sethi talks about how he negotiated out of bank fees – he has a “checking account” which he overdrew (used more than the funds he had) and the bank charged him an overdraft fee for this. The U.S. has “checking” and “savings” accounts that are different; you write cheques from the former, and only the savings account earns interest.
The Indian banking system allows for both checking and savings accounts to be the same – you write cheques that moves funds from the same account that yields you interest. (Okay it’s just 4% interest). In fact many banks will allow you to link a savings account to a fixed deposit – that yields higher interest than the savings account – and allows you to “sweep in” any amount that you overdraw from this deposit. The remaining part of the deposit continues to earn higher interest.
“Current accounts”, which are usually given to businesses, are the equivalent of zero-interest checking accounts.
IRA accounts, 401(K)
People in the US seem to love numbers. When you ask them the route to someplace it usually contains instructions like “Take 426 east, and at exit 27 turn on 42 North and then it merges with 57 North…” and stuff like that. That’s perhaps better than instructions you get in India (“Take second right and ask the paanwaala where Tumkur road is”) but you’ll still get a little perturbed with numbers.
So bloggers will keep talking about 401(K) accounts. There is no such thing as a 400(K) or even a 401(J) account – the number and letter refer to a section of their tax code. Like we talk about 80C deductions.
401(K) is like our provident fund. This is a retirement account – an IRA, or an Individual Retirement Account – which yields interest. Unlike in India where the money is invested at a fixed rate of interest, the U.S. allows you to determine where your 401(K) money is allocated (Equities, bonds or the like). And unlike in India, 401(K) withdrawals are taxed. Things like Roth IRAs are just different kind of such accounts, like we have PPF and EPF.
Home loans are “mortgages”
What we call a home loan, they call a mortgage. They’ll routinely talk about second mortgages which are essentially top-ups on your home loan.
Do you come across any that sound funny?