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Types of Bank Accounts

As of 2022, India has 34 nationalised banks: 12 public sector banks and 22 private sector banks. Traditionally, most banks in India offer 2 types of bank accounts :

  1. Demand Deposit

i)  Savings Account

ii) Current Account

  1. Term Deposit

i)  Fixed Deposit

ii) Recurring Deposit 

1. Demand Deposit Accounts

As the name suggests, the account offers money to the depositor on demand. The account holder can withdraw funds from the account without any prior notice or penalty. 

The main advantage of having a demand deposit account is the ease of accessibility. However, these accounts offer a lower interest rate, compared to Term Deposit accounts. 

There are 2 types of Demand Deposit Accounts:

i) Savings Account

This is the most basic and common account that banks offer and is usually the first account that most people open. These accounts offer high flexibility for depositing and withdrawing funds. They offer high liquidity and are, thus, very popular amongst the common crowd. 

Features:

  • The minimum balance required may vary from bank to bank but is usually quite low. As instructed by the RBI, banks are now supposed to open “no-frill” accounts that have a provision of nil minimum balance.
  • Cash withdrawal and transaction limits are present but not enforced by most banks unless misuse of the account is suspected.
  • Debit or ATM cards, chequebooks are provided to the account holder for withdrawing and transferring of money.
  • The rate of interest is usually between 4% - 7%. Public sector banks offer a 4% interest rate, but private sector banks offer interest between 6% - 7%.
  • It offers discounts on locker rental facilities by most banks.

ii) Current Account 

Also known as Checking Accounts, these accounts are popular amongst business owners who have regular and frequent transactions. These accounts help in carrying out business transactions smoothly.  They are usually opened in the name of the firm or the company owned by the account holder.

Features:

  • No restriction on the number of transactions made in a day
  • Offers overdraft facilities
  • Interest is not usually offered by most banks
  • Charge service and maintenance fees
  • Internet banking and mobile banking services are available
  • The minimum balance is usually not required

2. Term Deposit Accounts  

As the name suggests, funds are deposited for a fixed term at an agreed fixed interest rate. The term can range from anywhere between days to a few years. The interest offered on term deposit accounts is considerably higher than demand deposit accounts.

There are 2 types of Term Deposit Accounts:

i)  Fixed Deposit

Popularly known as FDs, the depositor deposits a fixed sum of money in an account and earns interest over the term. It is quite popular amongst investors, as it offers high and secured returns. At the end of the agreed term, you receive the amount invested along with interest. You could try a fixed deposit if you want to build a habit of investing, but have a low-risk appetite.

Features:

  • The tenure varies across banks and your choices.
  • Interest varied from bank to bank. A general trend shows that private and foreign sector banks offer higher interests.
  • You cannot make premature withdrawals.
  • You can prematurely shut the account down by paying a penalty. 
  • The interest amount below ₹40,000 is tax-free.

A new concept of Flexi Fixed Deposit accounts has recently been introduced by banks. It combines the features of a fixed deposit account and a savings account. Account-holders can now have the liquidity of a savings account along with the high-interest rates of fixed deposit accounts.

ii) Recurring Deposit

Also known as RD accounts, they are an investment avenue for those people who do not have lump sum savings, but have small savings every month. It helps in inculcating the habit of regular savings. Longer the tenure of the monthly deposits, the higher the rate of interest. 

Features:

  • Tenure lasts from a minimum of 6 months to a maximum of 10 years.
  • Cannot be withdrawn prematurely but can be shut down by paying a penalty
  • Account-holders can take a loan worth 80% - 90% of the deposit by using the deposit as collateral.
  • Any default in the monthly deposit will result in a penalty payment.
  • Passbook is issued by the bank to keep track of all the entries made.
  • You can allow your bank to transfer the fixed sum of money from your savings account to the RD every month.

Other Types of Bank Accounts

Keeping aside the traditional 4 accounts, banks also offer a few other types of accounts for special purposes

Non-Resident Deposits 

These accounts are primarily for Non- Residential Indians (NRIs). It is used by them to deposit their money in Indian banks while staying in a foreign country. There are 3 types of Non-Resident Deposits:

i) Foreign Currency Non-Resident (FCNR) Account

  • They accept deposits and are maintained only in foreign currency such as the US dollar, euro, yen, pound sterling, Australian dollar and Canadian dollar.
  • Account deposits are non-taxable in India.
  • Only Term deposits are accepted.

ii) Non-Resident External Rupees (NRE) Account     

  • The Indian rupee is the only acceptable currency.
  • Non-taxable in India.
  • Term and Demand deposits are allowed.

iii) Non-Resident Ordinary Rupees (NRO) Account

  • Indian Rupee is the only acceptable currency.
  • Taxable
  • Term and Demand Deposits are allowed.

DEMAT

DEMAT stands for Dematerialized Accounts. It holds financial securities such as equities and debts in electronic form. It is used for the smooth transaction of shares. It offers low transaction costs.

Opening A Bank Account

The procedure of opening a bank account is not as tedious and time-consuming, as it once used to be. You can either open an account by going to the nearest branch of the bank of your choice or you could apply online.

You will all or some of these documents while applying in a bank to open an account:

i) Aadhaar Card

ii) PAN Card

iii) Driving License 

iv) Address Proof

v) Passport

vi) Voter ID

vii) Employee ID

viii) Passport Size Photographs 

If you choose to physically go to the branch to open an account, you will be required to carry a few of the above-mentioned documents for the purpose of identification. You will be assisted by the bank's employees on what to do next and what forms to fill out. By choosing the online method, you will have to scan the required documents and upload them wherever necessary and the rest of the procedure is pretty much the same. Some banks even offer to send an assistant to help you out with the procedure on request.

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