Bank Accounts in India

After knowing about the salient features of our Banknotes, now we will learn something about the type of bank accounts available in India. 

Banks in India have typically four types of deposit accounts namely Current Account (CA), Saving Bank Account (SB), Recurring Deposit (RD) and Fixed Deposit (FD). Of late, the new regime banks have combined the features of two or more types of above accounts to create new type of accounts. These include the Demat account, Sweep FD account, Overdraft account etc. All the variants, however, are covered in these four types only.

Current Account

Current Accounts are basically meant for businessmen and generally opened in the names of firm or business unit. However, there is no restriction in opening a current account in the name of individuals also. No interest is paid by banks on these accounts; therefore this account is never used for the purpose of investment or savings. Typically, bank charges certain service charges on such accounts as per the variant offered to the client. This variant also decides the number of transactions or the amount of transactions in specified time period that can be carried out.  Various facilities of cash and cheque deposit, remittance, online banking and cheque book is made available to the account holder along-with facility to transact in multiple branches or cities. Different limit and overdraft accounts are also treated as current account.

Savings Bank Account

The Saving Bank account or SB a/c is the most popular account for individual persons wherein general public can deposit and withdrawal funds. As the name suggests, it is mostly used for keeping the savings where duration of keeping the deposit is not certain or fixed. Typically it is used by individuals for their routine but not frequent transactions. Generally, this account provides branch banking as well as online banking facility. The unique feature that separates a saving account from current account is that banks provide interest on the amount kept in the account. Since 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI.  Under directions of RBI, now banks are also required to open accounts which do not have any minimum balance requirements. Interest earned upto Rs. 10,000 in a financial year on Saving Bank accounts is exempted from tax making them a very lucrative small savings tool.

Fixed Deposit Account

Fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years are offered to Indian public by all the banks. These are also popularly known as FD accounts or Term deposits. The term "fixed" in Fixed Deposits (FD) denotes that the period of maturity or tenor of the deposit is fixed unless the depositor asks for closing (or breaking) the fixed deposit prematurely by paying a penalty (usually of 1%, but some banks either charge less or no penalty). Usually a bank FD is paid in lump sum on the date of maturity.  However, most of the banks have also facility to pay/ credit interest in saving account at the end of every month or quarter at a marginal discounted rate. A similar variant of such deposits are the linked FD or Automatic Sweep Accounts wherein amount in saving bank account above a pre-decided threshold limit is converted into Fixed Deposit for a particular period. These deposits close automatically when the balance in the SB account falls below the threshold limit. 

Each bank can individually decide on the rate of interest for Fixed Deposits to be offered to customers and can have varied interest rate structure. The present trends indicate that a few new generation private sector and foreign banks offer higher rate of interest.  

Recurring Deposit Account

Popularly known as RD accounts, these are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month.  Normally, such deposits earn interest on the amount already deposited (through monthly installment) at the same rates as are applicable for Fixed Deposits / Term Deposits. Under these types of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs. 500/- p.m.).  These accounts can be funded by giving Standing Instructions by which bank withdraws a fixed amount on a fixed date of the month from the saving bank of the customer (as per his mandate) and the same is credited to RD account.  Maturity period for Recurring Deposit accounts are normally allowed from 6 months to 120 months. Premature withdrawal of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals).

Next, we will discuss about the various ways of transferring the money (Remittance).