by

Rajesh Goyal   

TYPES OF BANK ACCOUNTS IN INDIA (Deposit Accounts)

Traditionally banks in India have four types of deposit accounts, namely Current Accounts, Saving Banking Accounts, Recurring Deposits and, Fixed Deposits.   However, in recent years, due to ever increasing competition, some banks have introduced new products, which combine the features of above two or more types of deposit accounts.  These are known by different names in different banks, e.g 2-in-1 deposits, Smart Deposits, Power Saving Deposits, Automatic Sweep Deposits etc.  However, these have not been very popular among the public.

What is  a Current Account ?  Who uses current accounts? Current Accounts in Banks

Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings.  These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day.  Most of the current account are opened in the names of firm / company accounts.   Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties.  No interest is paid by banks  on these accounts.  On the other hand, banks charges certain  service charges, on such accounts.   

Features of Current Accounts :

(a) The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly.

(b) There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits;

(c)  Usually banks do not have any interest on such current accounts.   However, in recent times some banks have introduced special current accounts where interest (as per banks' own guidelines) is paid

(d) The current accounts do not have any fixed maturity as these are on continuous basis accounts

What is a Savings Bank Account ?  Who uses Saving Bank Accounts ?

These deposits accounts are one of the most popular deposits for individual accounts.  These accounts not only provide cheque facility but also have  lot of flexibility for deposits and withdrawal of funds from the account.   Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these.   However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account.  Till 24/10/2011, the interest on Saving Bank Accounts was regulared by RBI and it was fixed at 4.00% on daily balance basis.   However, wef  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 no frill accounts (this term is used for accounts which do not have any minimum balance requirements).  Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits.  From the FY 2012-13, interest earned upto Rs 10,000 in a financial year  on Saving Bank accounts is exempted from tax. 

Click Here to know Which Banks are Paying the Highest  Saving Bank Interest Rates / Interest Rates on Savings Account

What are Recurring Deposit Accounts ?  Who use Recurring Deposit Accounts ? or RD accounts

These are popularly known as RD accounts and 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 installments) at the same rates as are applicable for Fixed Deposits / Term Deposits.   These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans or save for the future.

Under these type of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs,100/- p.m.).   Any default in payment within the month attracts a small penalty.    However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable  RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon.

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.

Recurring Deposit accounts are normally allowed for maturities ranging from 6 months  to 120 months. A  Pass book is usually  issued  wherein  the person can get the entries for all the deposits made by him / her and the interest earned.   Banks also indicate the maturity value of the RD assuming that the monthly instalents will be paid regularly on due dates.    In case instalment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments.  Premature withdrawal of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals).    These accounts can be opened in single or joint names. Nomination facility is also available.

The RD interest rates paid by banks in India are  usually the same as payable on Fixed Deposits, except when specific rates on FDs are paid for particular number of days e.g. 500 days, 555 days, 1111 days etc i.e. these are not ending in a quarter. 

(A) Click Here to know the  Highest FD / RD Rates of Banks in India   

(B) Click Here for :    Recurring Deposit Calculator

What are Fixed Deposit Accounts in India or Term Deposits

All Banks in India (including SBI, PNB, BoB, BoI, Canara Bank, ICICI Bank, Yes Bank etc.)  offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years.   These are also popularly known as FD accounts.   However, in some other countries these are known as "Term Deposits" or even called "Bond".    The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors  are supposed to continue such Fixed Deposits for the  length of time for which the depositor decides to keep the money with the bank.  However, in case of need,  the depositor can ask for closing (or breaking) the fixed deposit prematurely by paying paying a penalty (usually of 1%, but some banks either charge less or no penalty).   (Some  banks   introduced variable interest fixed deposits.  The rate of interest on such deposits  keeps on varying with the prevalent market rates i.e. it will go up if market interest rates goes and it will come down if the market rates fall.  However, such type of fixed deposits have not been popular till date).

The rate of interest for Fixed Deposits differs  from bank to bank (unlike earlier when the same were regulated by RBI and all banks used to have the same interest rate structure.   The present trends indicate that private sector and foreign banks offer higher rate of interest.  

The earlier trend that private sector and foreign banks offer higher rate of interest is no more valid these days.  However, now a days small banks are forced to offer higher rate of interest to attract more deposits.   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 quarter.  If one desires to get interest paid every month, then  the interest paid will  be at a marginal discounted rate.  In the changed computerized environment, now the Interest payable on Fixed Deposit can also be easily transferred on due dates to Savings Bank or Current Account of the customer.

(C) Fixed Deposit Calculator - With Compounding of Monthly, Quarterly, Half Yearly or Yearly basis

(D) Which Banks in India are paying highest interest rates on Fixed Deposits