Kinds of Bank Accounts

Kinds of Accounts

1.       Current Account: Current account is not used for the purpose of savings. It is only opened by businessmen who have a larger number of general transactions with the banking organization. Features:

·       Opened by associations, companies, institutions, religious institutions, etc.

·       There is no fixed number of times that the current bank account holders can deposit or withdraw money from it.

·       Internet banking feature is available.

·       It does not have any fixed maturity

·       Overdraft facility is provided

·       There is no rate of interest paid on current bank accounts.

2.       Fixed Deposit Account: Fixed Deposit or an FD account provides investors a higher rate of interest than the regular savings account on the given maturity date. It may require the creation of a separate account altogether. Features:

·       It is a one-time deposit and take away account.

·       The account holder needs to deposit a fixed amount of funds for a fixed period of time.

·       The amount deposited in a fixed deposit account is withdrawable just once and not anytime as per the account holders’ requirements.

·       A certain amount of interest is paid on the fixed deposit account

·       The rate of interest of a fixed deposit account depends on the amount deposited and the time duration for which the amount is deposited.

·       The bank is liable to repay the full amount deposited in the FD before the maturity date.

3.       Savings Bank Account: The savings account can be opened either by an individual or jointly by two individuals with a prime objective of saving money. The main advantage of opening a savings bank account is that it pays the customer a sum of amount in the form of interest against opening this type of savings account. Features:

·       No limit of the number of times the account holder can deposit money in the account. However, there is a restriction on the number of times money can be withdrawn by the account holder.

·       The rate of interest varies from 4% to 6% per annum

·       No minimum balance required to be maintained.

·       Internet bank service is provided

·       Account holders are provided with an ATM/ Debit/ Rupay Card

·       Savings bank account is further categorized as Basic Savings Bank Deposit (BSBDA) and Basic Savings Bank Deposit Accounts Small (BSBDS)

·       Such a type of account is suitable for students, working professionals, housewives, pensioners, etc.

4.       Recurring deposit account: Recurring Deposit or RD account is a type of account in which the account holder is required to deposit a fixed amount of money every month till the time it reaches the fixed maturity date. The account is an investment tool that encourages people to make regular deposits and receive decent returns on their investment. Features:

·       It is the regular deposit factor and the interest aspect that the account provides flexibility and ease of investment to the account holders.

·       The RD account can be opened by any individual or an institution either jointly or separately

·       Regular monthly instalments to be added can range from as low as INR 50 to any amount from one bank to another

·       The account can be opened ranging from 6 to 120 months.

·       Its rate of interest varies from bank to bank

·       The Recurring Deposit Account provides the nomination facility as well

·       Account holders are issued passbooks to know their account summary on a regular basis

·       The bank can deduct a sum of the amount as a penalty if premature withdrawal of the amount is made.

Non Resident Accounts

—  Can be opened by NRIs and Overseas corporate bodies with any bank in India that has an authorized dealer license.

—  Types:

1.       Foreign Currency Non-Resident Account:

—  Maintained in the form of FD for 1 year to 3 years.

—  Account is designated for the currencies (Pounds, Sterling, US Dollars, Japanese Yen and Euro).

—  Account holder does not incur any exchange losses.

—  Depositor will have to bring in money into the account through a remittance from abroad or through a transfer from another FCNR/NRE account.

—  If the money is not in designated currency, then he will have to bear the cost of conversion into the designated currency.

—  On maturity, he can freely repatriate the principal and interest.

—  Interest earned on these deposits are exempted from tax in India.

2.       Non-resident External Rupee Account:

—  As in the case of FCNR:

—  The money has to come through a remittance from abroad, or a transfer from another FCNR / NRE account.

—  The principal and interest are freely re patriable.

—  Interest earned is exempt from tax in India.

—  Differences are:

—  It can be operated with a cheque, as in the case of any savings bank account.

—  It is maintained in rupees. Therefore, a depositor bringing money in another currency will have to first convert them into rupees; and then re-convert them to the currency in which he wants to take the money out.

—  If during the deposit period, the rupee becomes weaker, then that loss is to the account of the depositor.

3.       Non-Resident Ordinary Account:

—  As with a NRE account,

—  It can be operated with a cheque, as in the case of any savings bank account.

—  It is maintained in rupees with the resulting implications in terms of currency conversion losses for the depositor.

—  Difference:

—  The money can come from local sources – not necessarily a foreign remittance or FCNR / NRE account.

—  The principal amount is not re partible, though the interest can be repatriated.

—  The bank will deduct tax at source, on the interest earned in the deposit.

—  A non-resident can open an NRO account jointly with a resident.