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Tuesday, 20 December 2016

Types of bank accounts in India

Types of bank accounts in India(Savings,Current,RD and FD)

Traditionally banks in India have four types of deposit accounts, namely  Saving Banking Accounts,Current Accounts, Recurring Deposits and, Fixed Deposits

Savings account

Savings banks accounts (or savings accounts) are the most common type of bank account held by individuals around the world.In India any individual holding identity and address proof can open s savings bank account with any any bank.Saving accounts are opened to encourage the people to save money and collect their savings.At present, the rate of interest ranges between 4% to 6% per annum in India.

Features of Saving Account

  • The main objective of saving account is to promote savings. 
  • There is no restriction on the number and amount of deposits. However, in India, mandatory PAN (Permanent Account Number) details are required to be furnished for doing cash transactions exceeding र50,000. 
  • Withdrawals are allowed subject to certain restrictions. 
  • The money can be withdrawn either by cheque or withdrawal slip of the respective bank. 
  • The rate of interest payable is very nominal on saving accounts. At present it is between 4% to 6% p.a in India. 
  • Saving account is of continuing nature. There is no maximum period of holding. 
  • A minimum amount has to be kept on saving account to keep it functioning. 
  • No loan facility is provided against saving account. 
  • Electronic clearing System (ECS) or E-Banking are available to pay electricity bill, telephone bill and other routine household expenses. 
  • Generally, equated monthly installments (EMI) for housing loan, personal loan, car loan, etc., are paid (routed) through saving bank account.

Recurring deposit

Recurring Deposit is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits.It is similar to making FDs of a certain amount in monthly installments.
Recurring deposit account is generally opened for a purpose to be served at a future date. Generally opened to finance pre-planned future purposes.

Features of Recurring Deposit Account 

  • The main objective of recurring deposit account is to develop regular savings habit among the public.
  • In India, minimum amount that can be deposited is Rs.10 at regular intervals.
  • The period of deposit is minimum six months and maximum ten years.
  • The rate of interest is same as that of FD.
  • No withdrawals are allowed. However, the bank may allow to close the account before the maturity period.
  • The bank provides the loan facility. The loan can be given upto 75% of the amount standing to the credit of the account holder.
  • The Recurring Deposit can be funded by Standing instructions which are the instructions by the customer to the bank to withdraw a certain sum of money from his Savings/ Current account and credit to the Recurring Deposit account.
Formula to calculate RD
The formula to calculate the interest is given as under:
where I is the interest, n is time in months and r is rate of interest per annum.
The formula to calculate the maturity amount is as follows: Total sum deposited+Interest on it
Tax Deducted at Source ( TDS ) is applicable on RDs. If interest earned on recurring deposits exceeds Rs. 10,000 a year, TDS at the rate of 10 per cent would be deducted by the bank. Income tax is to be paid on interest earned from a Recurring Deposit at the rate of tax slab of the RD holder. Investors with no taxable income will have to submit Form 15G to avoid TDS on both recurring deposits and fixed deposits.

Fixed deposit (FD)

A fixed deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.

Features of Fixed Deposit Account 

  • The main features of fixed deposit account are as follows:-
  • The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money).
  • The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
  • The period of fixed deposits range between 15 days to 10 years.
  • A high interest rate is paid on fixed deposits. The rate of interest may vary as per amount, period and from bank to bank.
  • Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed account prior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) from the interest payable as on that date.
  • The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period.

Current Account

A current account is a type of deposit account that caters to professionals and businessmen alike. Dealing largely with liquid deposits, this product allows for withdrawal of funds and checks being written against the balance and does not limit the number of transactions in a day.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 :

  • The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly.
  • There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits;
  • 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
  • The current accounts do not have any fixed maturity as these are on continuous basis accounts
Documents required for opening a Current Account in a bank
  1. PAN Card.
  2. Partnership Deed (in case of Partnership Firm)
  3. Certificate of Incorporation, Memorandum of Association and Articles of Association (in case of Companies)
  4. A Cheque for opening the Bank Account.
  5. Address Proof of the Firm/ Company/HUF.
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