8 min read
Updated on Oct 27, 2023
A range of bank accounts are available for an investor to choose from depending on different factors such as purpose of the account, location of account holder and the frequency of transaction etc. A bank account holder receives varied features and deals offered by the bank as per his/her needs.
There are several regulations and systems under which bank deposits work. When investors invest a deposit in a bank for a particular period, the bank securely holds the amount for that period. All banks have specific guidelines for different deposit amounts and different deposit periods. During this period while the bank is holding the deposit for the customer, the amount becomes an asset to the bank and they can use it to fulfill their requirements.
However, this amount is also the liability of the bank and the bank has to return it along with the interest to the customer on the due date.
Bank customers can use different methods to deposit the funds as mentioned below:
If you consider the conventional types of bank accounts, there are four basic types to choose from, namely:
Each of these accounts are unique and have their own advantages. Let’s understand them better.
As the name goes, a savings bank account is a regular deposit account that offers a certain minimum interest rate to the account holder. A savings account suits people with specific income who want to save their money in an account.
It is very simple to open a savings account. All you need is to deposit a small amount, which is regarded as an initial deposit fixed by the particular bank as per their rules and regulations. Money in a savings bank account can be deposited at any time by the depositor. These banks offer ATM cards that can be used by account holders to withdraw money from the account anytime. Besides, the investor can also use cheque or withdrawal form to withdraw money from the account. However, there are certain restrictions in terms of withdrawal and transaction to be done in a savings account. Here, the bank levies a cap on the number of transactions allowed to the customer every month.
Depending on their requirement, age, purpose etc., a savings bank depositor can avail from a number of savings accounts offered by the banks. For instance, you can have a regular savings bank account, senior citizens savings bank accounts, savings accounts for a child and savings accounts for women etc. Further, there are joint accounts or family savings accounts etc.
A current account is another type of bank account that can be opened by a depositor. Here, there are fewer restrictions levied by the bank as compared to savings accounts in terms of transactions.
A current account, also known as demand deposit account, is mostly used by traders and businesses who have frequent needs of cash transactions on a daily basis. These accounts levy no limitation on the number of per day transactions done by the depositor. Also, you can hold more liquid deposits or cash in a current account as compared to a savings account.
Another advantage of current accounts is that they allow overdraft facility, which means the depositor can withdraw more money than what is currently available in his/her account. This is a unique facility that differentiate a current account from a savings account. Another key difference between savings and current accounts in India is that the current account does not offer any interest rate and hence they are regarded as zero-interest bearing accounts.
Further, as in the case of a savings account, a depositor has to maintain a minimum balance in the current account as well. Current accounts are mostly opted by people involved in trade and commerce to smoothen their daily performance of multiple transactions. You may note that banks charge hefty amounts as maintenance and service charges to maintain these accounts.
A Recurring Deposit (RD) comes with a fixed tenure and allows the depositor to invest an amount of money in it regularly (either monthly or quarterly) to earn interest. It is not necessary for the deposit or investment to be a lump sum amount. Rather, the account holder can deposit a certain amount in frequent intervals.
The tenure of the RD remains fixed and cannot be varied. Most RDs reach maturity in 6 months to 10 years time. However, if the depositor withdraws the money prematurely, he/she can face a penalty in the form of low interest.
An RD is the best option for people who want to integrate the habit of savings in their lives. The rate of interest of RD might vary depending on the bank you are opening the account in. It can be between the range of 5-7 % for citizens below 60 years. For senior citizens, the rate might differ.
Fixed Deposits (FDs) is a type of bank account in India that allows the investors to increase funds by depositing them in a FD account and by earning a good interest rate on it. Here, the investor can keep a fixed sum of money in the bank for a certain time period till the FD matures. The term of FDs can range between seven days to 10 years, and depending on the FD tenure its interest rate also varies.
FDs generally do not allow the investor to withdraw money before maturity. Even if they allow, they levy a penalty to the customer in the form of low interest rates. FDs are guaranteed return plans with an interest rate of 5 to 9%, which is higher as compared to savings accounts. Further, FDs also provide tax exemption of up to INR 1, 50,000 under section 80C of the Income Tax Act, 1961.
Like in the case of recurring accounts, FDs also don’t allow premature withdrawal of money. Though a customer can shut-down his/her FD account ahead of time, they need to pay a penalty for the same. Overall, FD is a safe investment portfolio allowing guaranteed returns.
Let’s take an example to understand bank deposits better.
Mrs. Sandhu went to the branch of her bank to open an FD account. Once at the bank, she explored the various options available as per the rate of interest offered. Banks allow different policy tenures for FDs and the longer the duration the better the interest rate earned on the FD. Mrs. Sandhu went ahead and bought a three-year FD by depositing INR 5,00,000 on a 6% rate of interest.
During the three-year tenure, Mrs. Sandhu’s deposited amount can be used by the bank. Once the FD matures, Mrs. Sandhu can collect the money without penalty. The bank will offer her the deposited amount of INR 5 lakh and the interest earned.
|Bank Account Type||Details|
|Current account||– These accounts serve the purpose of corporate bodies and firms in managing their daily finances
– They allow higher transactions
– The deposited amount may not earn interest
– Used for frequent transfer of money
– Comes with other features like overdraft
|Savings account||– This is a regular deposit account designed for customers to save and store money
– The deposited amount earns an interest
– They come with certain limits on withdrawals and transactions
|Demat account||– Demat accounts hold securities in electronic form
– It is mainly used for the sale, purchase, and transfer of bonds, stocks, etc
|Senior citizens account||– These accounts are specially created for senior citizens (60+ years)
– They offer several benefits to the elderly like high ROI on FDs, low charges, and many other privileges
|NRI account||– These are accounts designed for NRIs or Indian citizens living abroad
– They Allow NRIs to save and manage earnings received abroad
– They also offer several investment options to the NRI
|Salary account||– This account is created by employers for employees working in their organization to transfer salaries
– Most salary accounts are zero balance accounts, and they allow higher limits of withdrawal
– These accounts come with many added benefits
|FCNR or Foreign Currency Non-Resident account||– This is a type of FD account expressed in overseas currency
– NRIs can use this account to save their foreign currencies earned overseas in India to receive interest
When considering types of bank deposits, every account has its advantages and disadvantages and it is up to the account holder to consider which account type would suit them. With advancement in banking technology and digital payments, banks these days are offering hassle-free services to customers. An investor can open any of the above mentioned accounts offering varied facilities. You are no more required to visit your branch to understand the details of transactions made or to check account balance. Everything can be done smoothly from the comfort of your home.
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There are mainly four types of bank deposit accounts in India, namely -
1. Current Account,
2. Recurring Deposit account,
3. Savings Accounts, and
4. Fixed Deposit Accounts.
Bank deposits are of two types - demand deposit and time deposit. Under a demand deposit, which is for a conventional savings account, the depositor can withdraw money at any time. On the other hand, Time deposits come with fixed tenure and pay a fixed rate of interest which you cannot withdraw at any time. For Example, Certificate of Deposit (CD).
The different types of accounts include:
# Current Account
# Savings Account
# Fixed Deposit Account and
# Recurring Deposit Account
Deposit accounts are also termed as bank accounts. They are financial products offered by banks and credit unions for your banking needs. Deposit accounts can be any account type such as a savings account or a current account where a customer can deposit and withdraw money at any time.
Fixed Deposits (FDs) are kind of term deposit accounts which allow the investor to earn interest by depositing an amount for a certain period of time. Different types of fixed deposit accounts are offered by almost all the major banks in India.
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