Introduction
Money has become a major part of our life. To keep this money safe and secure, we go to the bank. There we need to store it as a deposit in our account. Thus, we all are aware that the basic provision of any bank is giving an account to the customer to maintain a bank deposit. Though it seems to be simple, it is a vast topic. Let's have a detailed discussion on types of deposits and accounts along with the features and benefits of each account.
Types of Deposit and Accounts
We use banks for the smooth flow of day-to-day transactions, saving money with safety and security. We can open an account either in public or in private banks. We have various types of deposits based on the type of account. Let's see multiple types of accounts provided by banks commonly.
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Savings Bank Account:- Savings bank account is a common account that any individual or a joint account can open by two people. It is the major type of deposit for saving money. Here the bank pays interest to the account holder. It is of two types.
Basic Savings Bank Deposit Account (BSBDA)
Basic Saving Bank Deposit Accounts Small Scheme(BSBDS)
Highlights of the Savings Bank Account:-
It doesn't have a maximum limit on the amount of deposit and the number of times. But, there is a restriction on minimum amount and withdrawal times.
The annual rate of interest will be credited to the account, and it may vary by change in RBI rules.
The savings bank account holder will get a debit or Rupay or any other ATM card to do transactions online or at ATM centres.
Current Bank Account:- Another famous type of deposit is the current deposit account. It is not meant for a savings scheme. It is purely business operations.
Highlights of Current Deposit Account:-
These types of deposits and accounts are opened by companies, educational institutions, hospitals, religious entities etc for day to day operations.
They don't have limits and restrictions for both deposits and withdrawals.
The current account holders can avail online banking services.
Bank won't pay interest but gives overdraft benefits.
Recurring Deposit Account:- The short form of a recurring deposit account is RD. It is another type of deposit where the account holder needs to deposit some fixed amount for every month.
Highlights of Recurring Deposit Account:-
These types of deposits are useful for both individuals and organizations. They are like periodic deposits for saving money as a regular habit.
The bank pays interest and provides a passbook.
The monthly instalment starts from a minimum of 50/- and no maximum limit for a minimum of six months and so on.
Premature withdrawals, loans, allocation of nominees etc were available.
Fixed Deposit Account:- We commonly know it as FD. It is another type of deposit that allows the account holder to deposit a sum assured for a locking period.
Highlights of Fixed deposit account:-
It is a single time deposit with a desirable locking period.
It helps to restrict ourselves from using or wasting money and provides the whole sum along with interest in the future.
A bond is provided with a maturity date and time to withdraw the amount.
Here also we can mention nominees.
Premature withdrawals are also allowed with loss of interest.
NRI Account:- The NRI accounts are available to provide banking services for non-residential Indians. We have three different types of NRI accounts based on their purpose. They are -
NRO - Non-Resident Ordinary Rupee Account.
NRE - Non-Resident External Rupee Account.
FCNR - Foreign Currency Non-Resident Account.
DEMAT Account:- Dematerialized Account is the full form of a Demat account. It is used to trade shares and securities online.
Highlights of Demat Account:-
Using a Demat account, trading doesn't require much paperwork.
It allows traders to trade from anywhere.
National Securities Depository Limited and Central Depository Services Limited are available to manage these types of deposits and accounts.
It only requires KYC and has low transaction charges.
Conclusion
Thus we have various types of deposits with different types of benefits for the customers. It helps to maintain balanced financial assets with safety and security. After getting detailed information on these accounts, choose the best fit for you.
FAQs on Bank Deposit
1. What is a bank deposit in the context of commerce?
A bank deposit refers to the act of placing money with a banking institution for safekeeping. From a commercial perspective, these deposits are a liability for the bank, as it owes the money to the depositor. Banks use these collected funds to provide loans and make investments, which forms the basis of the banking system. Examples include depositing sales revenue into a company's current account or an individual saving their salary.
2. What are the four main types of bank deposits in India?
The primary types of bank deposits offered in India cater to different financial needs and are crucial for both individuals and businesses. The main types are:
- Savings Account: Intended to encourage saving habits, offering a modest interest rate with limits on withdrawal frequency.
- Current Account: Designed for businesses and professionals to handle frequent transactions. It typically does not offer interest and provides an overdraft facility.
- Fixed Deposit (FD): A lump-sum amount is deposited for a fixed period at an agreed rate of interest, which is higher than a savings account.
- Recurring Deposit (RD): Allows depositors to save a fixed amount every month for a predetermined period, earning a fixed rate of interest.
3. How does a Current Account differ from a Savings Account for a business owner?
For a business owner, choosing between a Current and Savings Account is a critical decision based on operational needs. The key differences are:
- Purpose: A Current Account is for frequent, high-volume daily business transactions, while a Savings Account is for accumulating personal savings.
- Withdrawal Limit: Current Accounts have no restrictions on the number of transactions, whereas Savings Accounts typically have a limit.
- Interest: Banks generally do not pay any interest on the balance held in a Current Account. Savings Accounts earn a small interest.
- Overdraft Facility: Current Account holders are often eligible for an overdraft facility (short-term credit), which is not available with a Savings Account.
4. What makes a Fixed Deposit (FD) a preferred option for long-term savings?
A Fixed Deposit (FD) is a preferred savings instrument for long-term goals due to several key features. Firstly, it offers a higher and guaranteed rate of interest compared to a regular savings account, protecting the investment from market fluctuations. Secondly, the fixed tenure instils a sense of saving discipline, as premature withdrawal often incurs a penalty. Finally, FDs are considered one of the safest investment avenues as they are secured and regulated.
5. Why do banks offer interest on customer deposits?
Banks offer interest as an incentive for customers to deposit their money. This process is fundamental to the bank's business model. The money collected from depositors is pooled together and used by the bank to issue loans to other customers (individuals or businesses) at a higher rate of interest. The difference between the interest earned from borrowers and the interest paid to depositors, known as the 'spread', constitutes the bank's primary source of profit.
6. What is the role of a Recurring Deposit (RD) in financial planning?
A Recurring Deposit (RD) plays a crucial role in systematic financial planning, especially for salaried individuals and small investors. It allows a person to invest a fixed amount of money every month over a set period. This cultivates a habit of regular saving and helps in building a significant corpus for future goals like paying for education, a down payment on a house, or any other planned expense. The interest is compounded, leading to better returns than keeping idle cash.
7. Beyond personal savings, what is the economic importance of bank deposits?
Bank deposits are vital to a country's economy. Their importance extends far beyond individual savings:
- Capital Formation: They pool the savings of the nation, which are then channelled into productive investments, leading to economic growth.
- Facilitating Commerce: Deposits in current accounts are the lifeblood of business, enabling smooth and efficient commercial transactions.
- Monetary Policy Implementation: The central bank (like the RBI in India) uses deposit-related tools like the Cash Reserve Ratio (CRR) to control the money supply and manage inflation.
- Financial Inclusion: Encouraging deposits helps bring more people into the formal financial system, giving them access to credit and other banking services.
