In income investing, maintaining liquidity is also very important. Withdraw of funds prematurely without getting penalized is a priority.
Liquidity is a big limitation in high interest paying debt plans.
This is reason why people feel safe in keeping their money in savings account.
But savings account returns are too low, and is also taxable.
But these days banks offer high interest paying savings account. These products are fantastic.
Normally banks offer 4% interest on deposits in savings. This is too low compared to inflation.
But savings accounts have also evolved. They have also found ways to give higher returns to its depositors.
Saving account having a SWEEP facility can do this for its depositor.
I personally use a savings account which automatically pulls funds from savings account and puts it in FD. All funds above Rs 25,000 automatically goes into fixed deposit.
On one side where savings accounts pays only 4% interest, fixed deposits pays close to 7.5%.
Suppose, savings account balance is Rs 100,000. In this case Rs 75,000 goes into fixed deposit.
These Rs.75,000 will continue generating high returns.
I can also withdraw these Rs.75,000 anytime. I can use my debit-card/online-banking to withdraw funds or make online payment.
There are no restrictions.
It is as if all money is in savings account.
New savings accounts not only earns high returns like FD, but also provide complete liquidity.