Types of Bank Accounts in India: Banking Awareness is an important section from the exam point of view and if you are a banking aspirant then you must be knowing it that how much difference can this section bring to your total score. In banking awareness, an important topic is the Types of Bank Accounts. The types of accounts are the basic building blocks of the banking industry. There are several types of bank accounts offered by financial institutions to cater to different needs and preferences of individuals and businesses. In this article, we will be discussing Different Types of Bank Accounts & their features.
What is a Bank Account?
A ‘bank account’ can be referred to as suitable negotiation you happen to do with a bank to safeguard your hard-earned money in exchange for certain terms and conditions that vary on the choice you make under different types of bank accounts and also on the bank. Once you agree to the terms and conditions of the bank, it then keeps your money and provides you with an account number which functions as a reference number for all further transactions which you make as a customer of that bank. The bank also pays you interest on the money you keep safe with the bank.
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List Of Different Types of Bank Accounts
Bank Accounts are mainly 5 different types. They are as given below:
1) Current Account
2) Savings Account
3) Recurring Deposit Account
4) Fixed Deposit Account
5) NRI Account
Current Account
A ‘current account ‘ is mainly meant for businessmen, companies, firms, and public enterprises, as it is not suitable for those who want to invest or save for a longer time also no interest if paid in these types of accounts. There is no provision of interest being paid, on the money that is deposited in such accounts. A customer can deposit and withdraw his/her money any number of time in a day. The deposits which are made under these accounts can be termed as the most ‘liquid’ deposits, always being in the flow and operational also, the deposits in these accounts are more like a liability than an asset to the bank. Bank may charge a penalty if minimum balance is not maintained in a current account.
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Saving Account
The saving account is the most popular and widely preferred deposit account by the bank customers who want to safeguard their money as well as wants to earn some interest on it. These types of bank accounts are like an asset to the bank because there is a limit on the number of transactions that can be made by a customer having these accounts and there is also limit on the amount per day that can be transacted. The rate of interest offered to savings accounts holders usually varies between 4% – 6 % and it also varies according to the bank.
Fixed Deposit
Fixed deposits are more Popularly known as FD account, it is a type of financial instrument that is provided by banks which offers an even higher rate of interest on the deposits made by an account holder, as compared to a regular savings account, until the period of maturity. Fixed Deposit account can also be called ‘Term Deposits’ / Bonds. A customer deposits his/her money in these types of accounts for a fixed period and cannot withdraw it until the maturity period. If he/she withdraws the money before the maturity time-period then a fine is to be paid which varies bank to bank. The interest rate in a Fixed Deposit Account varies between 4% – 7.25% depending on the bank. The period of an FD can vary from 7 days to 10 years.
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Recurring Deposits
Recurring Deposits refers to an account that provides the facility of saving a small amount of money for a certain period and also earn a high-interest rate. the term ‘recurring’ basically indicates to something that occurs periodically or repeatedly. These types of accounts are more commonly known as RD accounts. It offers a fixed interest on the amount that has been already invested (through monthly installments) at a specific frequency and the same rates as applicable for Fixed Deposits (FDs). Any individual above 10 years of age is also eligible to open a recurring account along with a valid ID proof. The minimum amount can be 100 or can be even lesser than that. The interest rate offered on the recurring account usually varies in a range of 3.5% – 8.5% depending on the bank as well as it also varies according to the period of the deposit. The minimum time period for a deposit in this account can be 6 months and the maximum is 10 years. The period for a recurring account is classified into three types as given below:
- Short-term Tenure: The period usually ranges between 6 months to 1 year.
- Medium-term Tenure: The period usually ranges from more than 1 year to 5 years.
- Long-term Tenure: The period usually lasts from more than 5 years to 10 years.
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NRI Account
These accounts are opened by non-resident Indians who wish to maintain a financial bank account in India. There are three kinds of NRI accounts that can be opened:
Non-Residential Ordinary Account (NRO)
These accounts hold deposits in Indian rupee denomination. The money deposited is from proceeds earned in India. There is no limit to how much money can be put in an NRO account. Any amount of balance can be maintained. The principal and the interest earned on that principal fall under the taxable category. These accounts are unaffected by the rate of conversion. An NRI can open a current account, a savings account or a fixed deposit account via the NRO account.
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Non-Residential External Account (NRE)
These accounts hold deposits in Indian rupee denomination. The money deposited, however, is not from proceeds earned in India; in other words, the money deposited is earnings or savings from the country where the non-resident Indian lives. There is no limit to how much money can be put in an NRE account. Any amount of balance can be maintained. The principal and the interest earned on that principal do not fall under the taxable category. These accounts bear the impact of a prospective change in the rate of conversion. An NRI can open a current account, a savings account or a fixed deposit account via the NRE account.
Foreign Currency Non-Residential Account (FCNR)
These accounts hold deposits in the currency approved by the central bank of India, the Reserve Bank of India. Any NRI or a person of Indian origin can hold deposits in an approved currency in which they earn their income. If the income is earned in a currency other than the approved list of currencies, then an approved currency is chosen for the conversion of the earnings or the proceeds to be deposited. FCNR accounts are often called FCNR (B) accounts where the (B) stands for banks. There is no limit to how much money can be put in an FCNR account. Any amount of balance can be maintained. The principal and the interest earned on that principal do not fall under the taxable category.
These accounts bear the impact of a prospective change in the rate of conversion. An NRI can open only a fixed deposit account with a minimum maturity of one year via the FCNR account.
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