Types of Bank Accounts – Indian Banking

Banking is a part of our lives. It has been around for times immemorial. With such a vast spread of the banking infrastructure, it is a surprise if one does not have an account in a bank. There are various types of bank accounts under any banking system some of them are explained in this article.

When it comes to banking, of course, money cannot be left behind. We use the bank to deposit our savings, usually in the form of cash. The account in which we deposit is called a deposit account because our money is deposited there or stored there.

To identify such an account, we are given a number, usually a long one. It can be a numeric or even an alphanumeric one. This set of numbers is called the Account number. The account number is the identification number of our deposit account. The same place we had deposited our money.

Why do we deposit?

One of the prime reasons we do is to save or accumulate money for the future. At times, we use that account to pay off our bills and to manage expenditures. Different types of accounts accrue different interest rates. It helps an average person to grow their money and beat inflation.

Types of Bank Accounts

Different financial institutions offer different types of bank accounts with varying interest rates like:

• Savings Bank Account
• Current Deposit Account
• Fixed Deposit Account
• Recurring Deposit Account
• No Frills Account

Savings Bank Account

A savings Bank Account is the most common type of bank account. This is a bank account, as the name suggests help one save the extra cash in hand. This account is beneficial to the ones who are salaried or earn wages. They would need a place to safely deposit their money. A savings bank account does that for them. A savings deposit account may be opened singly, jointly or by a minor under 10 with a guardian.

One can withdraw cash from the Savings Bank Account either through a cheque, a withdrawal from, or through the ATM.

Usually, there is no restriction for cheque withdrawals, however, withdrawals from the ATM is limited to a certain number of times, since the Automated teller machines need to be refilled and they do have a limited amount of cash stored.

A savings account also attracts interest and it varies from bank to bank. Most banks also levy a penalty if a minimum balance is not maintained as per the bank’s charter. Many banks also provide facilities for zero balance accounts, which are savings bank accounts, but with no minimum balance restrictions.

The primary objective of a Savings Deposit Account is to encourage savings. The main features of a Savings Deposit Bank Account are:

• The number of withdrawals are restricted. Different banks have different withdrawal limitations. This is to promote the basic idea of the savings bank account. Also, the minimum amount that can be withdrawn through withdrawal form is INR and through a cheque is INR 5.
• There are restrictions placed for deposits too. No third party cheques or documents will be entertained for the purpose of deposits in the savings deposit account
• There is a minimum balance for every savings bank account and that has to be maintained. The bank may levy a penalty for the non-maintenance of such an account.
• There is an interest that is paid by the bank, on the deposits maintained in the account. This rate of interest is decided by the Reserve Bank of India. The interest may be computed on a quarterly basis.
• Cheque facility is provided to the depositor on the maintenance of the minimum balance.

However, there are few prohibitions that are placed on the bank account. These prohibitions are placed by the RBI and are based on the type of entities that may not open a savings bank account. They are:

• Trading or business concern
• A company or an association
• Government departments
• Municipal corporations
• Panchayats
• State Housing boards
• Gram Panchayats
• Water and Sewerage and Drainage Boards
• Housing Corporations and societies
• State Book Publishing Corporations
• Industrial Development Boards
• State Electricity Boards
• Metropolitan Development Authority
• Any type of bank including land development banks

Current Deposit Account

 A Current Deposit Account is usually meant for businesses, organizations, and institutions. One of the reasons why businesses use a current account is that they don’t have withdrawal limits.

Current accounts are primarily used to pay salaries and other business expenses. The bank does not pay any interest on the balance in a Current account. However, a minimum balance has to be maintained.

One of the main features of a Current Account is the overdraft facility. This facility helps businesses to withdraw even beyond what is available in their balance. The overdraft facility is, however, no given to all and is based on the initial agreement between the bank and the entity. The overdraft amount differs from bank to bank.

A current account is usually operated for the purpose of salary withdrawal and corporate-related activities. This is the reason why there is no limit to the number of withdrawal. The deposits are also to be provided on demand to parties for payment. This is the reason why they are called deemed deposits.

There are certain privileges that are offered to holders of the Current Account:

• Third-party cheques and endorsed cheques are allowed to be deposited into the current account for collection and credit
• Overdraft facilities are provided to current account holders only
• The loans that are offered to banks are routed through the current account only. In such a scenario the current account earns an interest 

Prime differences between the Current Deposit Account and the Savings Deposit Account:

Both the Savings and The Current Deposit Account fall under the Demand Deposit Account

Fixed Deposit Account

Fixed Deposit Account is, as the name suggests, an account that comes with a locking period. There are customers who would want to lock their money for a longer period to earn more interest than a typical savings account. Banks also provide a higher interest rate for longer periods.

The period of deposit can range from 30 days to 3 years or even more. A customer can withdraw the fixed amount before the date of maturity, but only on request. In such an eventuality, the bank will lower the interest rate and release the amount. Otherwise, the banks allow the withdrawal of the interest on the fixed deposits at certain intervals only. At the end of the period, the amount can be withdrawn in full or renewed. Many banks also have the policy of providing loans on the basis of fixed deposits.

The features of a Fixed deposit account are:

• The rate of interest of a Fixed Deposit is higher than the other accounts. This is because the account holder has to part away from the liquidity for a certain period in time. The longer the period, the higher will the rate of interest be.
• There are special schemes for senior citizens. Fixed Deposit for senior citizens offers higher as well as a fixed rate of interest.
• A fixed Deposit can also be opened in joint names. This will be done as either or survivor basis. However, the problems faced by the bank, in such cases are: Request for refund untimely by one of the depositor, Loan against the Fixed Deposit Receipt by one of the Depositors, Request for duplicate receipt by one of the Depositor
• A Fixed deposit is usually payable after the maturity date. However, there are provisions that allow the bank to make a full payment even before the day of maturity. As per the RBI directive, banks have been advised not to charge a penalty in case of premature withdrawal of the Fixed Deposit, if the reason is another reinvestment in a Fixed Deposit, for a longer period.
• If a Fixed Deposit is not encashed at the date of maturity, the rate of interest will cease to exist for the deposit. Only if it is renewed, will the rate of interest will be allowed.

The Recurring and Fixed Deposit accounts are called the Time deposit accounts.

Recurring Deposit Account

Recurring Deposit Account is, as the name suggests is a kind of account that has to have a deposit in a said interval. The interval is usually every month. The customer can withdraw the amount before the date of maturity and the bank will release the amount along with the interest accrued till such period.

A recurring account can be opened jointly, as well as an individual account. A guardian can also have a recurring account opened in the name of a minor. Later that account can be transformed into an adult account.

The rate of Interest on a Recurring deposit account is higher than that of a savings bank account but lower than that of a Fixed deposit account.

The primary objective of the recurring account is similar to the savings bank account. It promotes regular or recurring savings. A recurring account also provides the holder with a higher rate of interest than a Savings Bank Account.

A recurring bank account is a temporary bank account with a maturity range of 1 year to 10 years. Account-holders can deposit money on a monthly basis, quarterly, half-yearly or yearly.

Certain Features of the Recurring Account:

• A recurring Account can be opened by a guardian representing a minor, a peon, jointly by a peon, individually and even by a minor. A passbook is provided at the time of the opening of the account and has to be periodically updated. At the time of maturity, the same has to be presented to the bank. The periodic deposit of money will reflect on the passbook.
• The rate of interest is decided by the RBI and should be in accordance with the rate of interest for various term deposits. Hence, the rate of interest for Recurring Accounts is almost at par with that of a fixed deposit.

No frills Account

The No-frills account is an account with a zero balance. It is primarily aimed at the poor or the lower strata of the economic class. It was implemented under the supervision of the RBI aimed at greater financial inclusion.

There are certain features though –

• There is a maximum ceiling up to which this account can hold. Depositing beyond this would transform this account into a Savings Bank Account.
• There is a requirement of minimum balance.
• The services provided with respect to such an account will be similar to that of a Savings Bank Account.
• While there have been no restrictions placed on the number of deposits, the number of withdrawals is limited to four withdrawals a month. This also includes ATM withdrawals.
• There would be no charges levied on this account. All penalties pertaining to non-operation or activation of inoperative accounts will be non-existent.
• This account is also called the basic savings bank deposit account and holders of this account shall not be operating any other type of account in that bank. If one is, then it has to be closed within 30 days of the opening of the basic account.

All types of bank accounts are banking products that serve different needs of a customer. A customer must evaluate their financial needs and goals to choose the best type of bank account. The rule of thumb is to choose an option that offers maximum return with minimum fees and convenience in money management.

Why do we need a bank account?

This is a pertinent question that needs to be asked, as we entering the 21^st century. A bank account, as we have seen is a repository of cash, and can be used as per the needs of the owner.

Let us look at all the advantages one can get by having a bank account:

• Savings: A savings bank account helps the owner of the account in saving extra cash in hand. It creates a habit which will hold in good stead. The various types of bank accounts provide different benefits. A savings bank account will not only provide the account holder with the option of saving money but give him an interest, for allowing the bank to invest that money somewhere else.
• Liquidity: Liquidity is one of the concerns most of us face at some point in time. The availability of a ready pool of cash is always a great advantage. One can withdraw and deposit cash as per their needs. This works as a great psychological advantage too.
• Identity: Since opening a bank account requires due diligence on the part of the bank, the credentials of the holder are already verified. Hence banking documents are the best way to establish the identity of any individual.
• Transparency: Banking transactions are one of the most transparent forms of monetary exchange. There are multiple records of transactions that are present across the virtual world as well as the one on the account holder’s passbook.
• Safety: Money in the bank is one of the safest ways to save. A bank account is not just secure but well regulated too. Some part of the deposited money is insured too. So no matter what happens to the branch, the money in the account is safe.
• Ease of payment: One can integrate regular online payments with the account and one will not have the headache of having to remember due dates. Utility bills can be directly paid from the account. A lot of time and effort is saved by the account holder. Many banks also allow direct deposit, whereas paycheques go directly into their accounts.
• Accessibility: A bank account is always accessible to the account holder. Even if the branch is closed, the ATM kiosks will always be open. Hence, withdrawing money or depositing them will never be an issue. Hence, it is also to handy have an ATM cum Debit Card.