Types of Bank Accounts – Banking Awareness Notes
There are three types of
Accounts in Bank
1.
Demand Deposits
2.
Time Deposits
Demand Deposits
1. Current Accounts
2. Savings Accounts
together are known as
demand deposit,
since they are payable on demand.
Current Accounts
In this type of account
depositor can withdraw money whenever he requires it. Generally, no interest is
paid on account deposits because bank has to keep the cash ready at all time to
meet the requirements of the depositor. Mostly, current accounts are opened by
businessmen or institutions who require to deposit/withdraw money several times
in a day. Current account deposits are called demand deposits also as the
debtor (bank) has to pay off the debt on demand either to the depositor himself
or to anyone else whom he authorises by writing a cheque. It is a liability for
the bank, but an asset for the depositor.
Salient
Features of Current Account –
- Firms, companies and businessman
are eligible to open account.
- Current bank accounts are
operated to run a business.
- It is a non-interest bearing
bank account.
- No limit on either the number of
transactions or the maximum amount of transactions
- Overdraft facility (short term
loan facility) is available
- It needs a higher minimum balance to be maintained as compared to the savings account.
Saving Accounts
Saving accounts are
basically for individuals and small businesses. You may deposit Rs.1000 today.
Tomorrow you may require Rs.5000, you may withdraw Rs.5000 tomorrow. Similarly
a grocery shop owner may deposit Rs.10000 today and in need he may withdraw
Rs.5000 tomorrow. This is not for large businesses. These accounts can be
opened individually or jointly or by Hindu undivided family (HUF) .
Another important point
is, this is normally intended for person above 18 years of age but person
between 10 to 18 years can also open individually without guardian but with
some restrictions. Minor accounts i.e below 10 years accounts has to be opened
with guardian only.
Salient
Features of Saving Bank Account –
- Saving Bank account is basically
for individuals and small businesses.
- The objective of saving bank
account is to promote savings.
- The rate of interest payable is
very nominal on saving accounts. It is vary from bank to bank.
- Minimum Balance – (varies from
bank to bank) – Normally Rs. 500 (without cheque book facility)
- Normally Rs. 1000 (with cheque
book facility).
- Some banks like – HDFC, ICICI
Bank – allow premium savings account deposits with minimum balance of Rs.
5000 or Rs. 10000.
- Bank offer zero balance accounts previously known as No-frills accounts / BSBDA and now under PMJDY.
Note:
- If you go to some bank like
ICICI or HDFC they may specify 10000/- min. balance in a metropolitan
area, 5000/- in small towns, 2000/- in rural areas. So the minimum balance
may differ.
- If minimum balance is not maintained banks may impose penalty.
Difference Between Saving Account And Current Account
Basis of
Difference
|
Saving Account
|
Current Account
|
Purpose
|
To encourage
savings
|
Many transactions
|
Ideal for
|
Salaried person
|
Business
enterprise
|
Minimum Amount
|
Less Amount
|
Higher amount
|
Interest Rate
|
4%-6%
|
No interest paid
|
Overdraft
|
Not allowed
|
Allowed
|
CASA RATIO – The Ratio of the deposits in the form
of Current Account and Saving Account to the total deposits is known as
CASA Ratio (normally expressed in %). More CASA ratio banks are in the
safe zone. ICICI, AXIS, HDFC & SBI have CASA Ratio more than 40%.
TIME DEPOSITS
Fixed Deposit and Recurring
Deposit – these
deposits are TIME deposits (as for specified period agreed
between you and the bank). In these deposits interest paid by the bank is
slightly higher than SA.
Note: If you are depositing the money for
1 year you will get the money after 1 year. But if you withdraw before the
agreed period i.e before 1 year, you have to pay penalty. Cheque book
facility is not available for time deposits.
Fixed Deposits-
A deposit of money that
pays higher interests than a savings account, but imposes conditions on the
amount, frequency and/or period of withdraws. It is also called time deposit.
All these accounts are secure and carry a government guarantee.
Salient
Features of FD –
- FIXED DEPOSIT can be operated
for a tenure ranging from 7 days to 10 years in Indian
banking system.
- Not payable on demand and do not
enjoy cheque facility.
- Interest rate may vary from bank
to bank.
- Interest rates will be slightly
higher for senior citizens (60 + years of age)
- Premature withdrawal of the
deposits is possible, but it attracts penalty at the rates varying from
0.5% to 1.5% .
- If the deposits are Rs. 1 Crore
or more, they come under bulk deposits and interest rates may vary
further.
- Loan facility is available on
principal as well as on interest.
But in FD you have to
pay income tax. If
your interest income exceeds Rs. 10000 banks will deduct TDS (Tax deducted at
source) i.e banks itself will deduct income tax.
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.
The main objective of
recurring deposit account is to develop regular savings habit among the public.
Salient
Features of RD –
- In India, minimum amount that
can be deposited is 10 at regular intervals.
- The period of deposit is minimum six
months and maximum ten years. (Minimum tenure varies
banks to banks. Some banks allow minimum tenure in RD for 3 months.)
- Minimum balance can be deposited
under RD is 500 per month and thereafter in multiples of
Rs 100/-
- The rate of interest is higher.
ACCOUNTS FOR NRI/PIO
1. Non Resident External Rupee Account
2. Non Resident Ordinary Account
3. Foreign Currency Non Resident Account
NRE (Non Resident
(External) Rupee) Account
NRE is a term assigned to
bank accounts available to NRI’s who currently reside outside India.
- An NRE account can be a saving,
current or a fixed term deposit account.
- It is a Rupee denominated
account which means funds in the NRE account are maintained in Indian
Rupees. This means that the foreign currency is converted to Indian rupees
at the prevailing foreign exchange rates when the money is deposited into
the account.
- The primary source of funds
deposited into NRE accounts must be from your earnings abroad. In other
words, you cannot deposit money from sources in India such as house rent
or pensions in this account.
- Both Principal and Interest can
be repatriated (can be converted to any foreign currency) / transferred
out of India. The conversion back to foreign currency is done at the
prevailing forex rates.
- Principle as well as Interest
income earned on the money in an NRE account is non-taxable in India. Also
there is no wealth tax. This tax exemptions is available only for an NRE
Account held by an individual and not for those maintained by OCBs
(Overseas Company Bodies)
- Interest rates on NRE Savings
deposits are the same as the rates applicable to domestic savings
deposits.
- You can only have other NRIs as
joint account holders on NRE accounts. Resident Indians cannot be joint
account holders in NRE accounts with NRIs.
- You cannot deposit Local rupee
fund i.e Indian Currency in to this account.
- Nomination is allowed for NRE accounts.
NRO (Non Resident
Ordinary) Account :
NRO is a term assigned to
bank accounts available to NRI’s who currently reside outside India
- An NRO account can be a saving,
current or a fixed term deposit account.
- Regular bank accounts of a
person, who becomes an NRI, also get converted into NRO accounts.
- It is a Rupee denominated
account which means funds in the NRO account are maintained in Indian
Rupees. This means that the foreign currency is converted to Indian rupees
at the prevailing foreign exchange rates when the money is deposited into
the account.
- The source of funds deposited
into NRO accounts can be from India or abroad. An NRO account can hold
income earned in India (such as dividends, pension or rental income).
- Funds cannot be transferred from
an NRO account to an NRE account.
- An NRO account can be held
jointly with another NRI or with a resident Indian.
- Principle amount cannot be
repatriated outside India in foreign exchange, without prior permission of
the Reserve Bank of India. Only current earnings are repatriable.
- The interest earned on deposits
in an NRO account is taxable.
- Interest rates on NRO Savings
deposits are the same as the rates applicable to domestic savings
deposits.
- Nomination is allowed for NRO
accounts.
Note-If the NRI holding the NRE account or
NRO account returns to India and becomes a resident of India, the NRE and NRO
accounts get converted into a regular resident account.
FCNR (Foreign
Currency Non Resident) Account
The term FCNR refers to
fixed-term deposit accounts available to NRIs and PIOs. FCNR accounts are only
in the form of term deposits of 1 to 5 years. FCNR accounts have to be opened
and maintained in the foreign currency itself. FCNR accounts can be opened in
five different currencies viz., US dollar, Pound Sterling, Euro, Japanese Yen,
Canadian Dollar and Australian Dollar. The source of funds deposited into FCNR
accounts have to be from sources abroad. They can also be from your other NRE
accounts. The principal amount and the interest are fully repatriable. Interest
income earned on the money in an FCNR account is non-taxable in
India. FCNR is free from currency risk as it keeps the money in same
currency.
What are the accounts that a tourist visiting India can open?
An NRO (current/ savings)
account can be opened by a foreign national of non-Indian origin visiting
India, with funds remitted from outside India through banking channel or by
sale of foreign exchange brought by him to India. The balance in the NRO account
may be paid to the account holder at the time of his departure from India
provided the account has been maintained for a period not exceeding six months
and the account has not been credited with any local funds, other than interest
accrued thereon.
