Types of Deposits in Bank – [Notes]

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Bank accounts in India are divided into three types: demand deposits, time deposits, and non-resident accounts. The classification of bank accounts in India is based on a number of factors, including account accessibility, liquidity, and the amount of interest that can be earned on cash put in the account.

Deposits are one of the most essential products that banks provide to their customers. Liability products are similar to deposit products. This is due to the fact that a bank that accepts deposits owes the same to its customers on their maturity dates or upon demand. For the bank, it is a liability.

Demand and Time Deposits are the two types of deposit products offered by banks. Deposits that are repayable on demand or within a short period of time are known as demand deposits. Time deposits are those that are held for a set amount of time and are either refunded to the customer at maturity or renewed for another term of the customer’s choice.

Different types of Deposits in Banks

Demand Deposits ❏ Savings bank deposits
❏ Current accounts
Time Deposits❏ Fixed Deposits
❏ Term Deposits
❏ Recurring Deposits
Others Deposits ❏  NRO – Non Resident Ordinary Accounts
❏  NE(E)RA – Non-Resident (External) Rupee Account
❏  FCNA(A) – Foreign Currency Non-Resident Account

Savings bank deposits and current accounts are examples of demand deposits. Fixed Deposits (both yielding simple and compound interest) and Cumulative/Recurring Deposits are examples of time deposits.

Savings Bank Account:

  • Individuals, jointly and individually, guardians for minors, Non-Resident Indians, and RBI-approved organisations can all create savings bank accounts.
  • The rate of interest on Savings Bank Deposits is set by the different banks’ boards of directors, and it may differ from one bank to another.
  • Interest is based on the account’s daily closing balance and paid to account holders quarterly or half-yearly.
  • In the case of joint accounts, the customer’s operational instructions for the account should be acquired. Clear instructions on operations should be obtained in the case of joint accounts.
  • Banks provide consumers with cheque books, debit cards, and other ancillary services such as internet banking, funds transfer, and so on.
  • The facility of nomination is now required in these accounts, according to the restrictions set forth in this regard. The nominee facility allows the nominee to receive the funds in the deposit accounts after the depositor/depositors have died without having to go through many legal hassles.

A deposit account can only have one nominee at any given time, and that nominee must be a living person. Organizations are not eligible to be nominated. Under the existing standards, all bank accounts of individuals, as well as private enterprises, must be nominated.

Current accounts:

  • Current accounts are used to route a large number of customers’ day-to-day transactions, such as companies and partnerships.
  • Customers do not receive interest on their current account balances in Current accounts.
  • Banks provide consumers with cheque books, debit cards, and other ancillary services such as Internet banking, funds transfer, and so on.
  • Low-cost deposits are defined as deposits with a low-interest outflow on current and savings accounts (CASA). Current account transactions are permitted, subject to the various procedures provided by banks in this respect.
  • Customers can close their current and savings accounts at any time.

Term deposit:

  • Term deposit accounts are deposits held with a bank for a set length of time and are subject to interest rates set by the different banks. Banks are free to set their own interest rates, and the RBI has no role in the matter.
  • Each bank offers rates that are competitive, depending on market conditions.
  • A bank can accept a deposit for a maximum of 10 years and a minimum of 7 days.
  • According to RBI guidelines, interest is compounded on the basis of every three months.
  • Term deposits can be closed early, names can be added or removed, and they can be renewed at maturity, among other things.
  • The Reserve Bank of India has outlined banks’ obligations to provide good customer service in terms of interest rates, maturity, and deposit disposal, among other things.

Fixed Deposit (FD Account):

  • Fixed Deposits are a kind of Term Deposits.
  • Banks, other financial organizations, and non-banking financial companies all provide fixed deposits as an alternative investment.
  • Money is deposited for a set period of time and customers obtain certain returns with a fixed deposit.
  • The rate of interest on fixed deposits ranges from 5% to 9%. The interest rate on a fixed deposit account is higher than the interest rate on a savings account.
  • Tenure is 7 days to 10 years in FD accounts.
  • Some banks now provide fixed deposits that qualify for a tax exemption of up to Rs. 1,50,000. Customers can claim this tax reduction every year under Section 80C of the Income Tax Act of 1961.

Recurring deposits:

  • Recurring deposits are those in which a consumer deposits small amounts of money in installments and receives a lump sum payment plus compounded interest at maturity.
  • This is a form of term deposit as well.
  • The recurring deposits are typically made for a period of 12 to 120 months.
  • It pays a higher rate of interest than a savings account.
  • All interest earned on bank deposits is taxable.

Recurring deposits can be classified into 3 types, namely:

  1. Home Safe Account (also known as Money Box Scheme).
  2. Cumulative-cum-Sickness Deposit Account.
  3. Home Construction Deposit Scheme/Saving Account.

In addition, banks also offer Foreign currency deposits for Non-Resident Indians, apart from NRE/ NRO Savings and Term Deposits. Interest rates on foreign currency deposits, NRE term deposits, and other types of deposits are quoted according to RBI norms that are updated from time to time. RBI regulations also apply to NRE/NRO savings accounts.

Non-Resident Ordinary Accounts:

  • This account can be opened by anyone who lives outside of India.
  • A domestic rupee account is converted to an NRO account when a resident converts to a non-resident.
  • This enables the NRI to obtain credits that accumulate in India, such as rent or investment interest.

Non-Resident (External) Rupee Account:

  • This account was first introduced in 1970 as part of the NRE scheme.
  • It’s a Rupee account, so NRIs can send money to India from their overseas accounts.
  • This means that the depositor is subject to the risk of fluctuating currency rates.

Foreign Currency Non-Resident Account:

  • FCNR (B), or Foreign Currency Non-Resident Account Bank, was established in 1993.
  • It took the place of the previous FCNR (A) scheme.
  • NRIs can open this account in any of the six currencies US Dollar, Canadian Dollar Australian Dollar, GBP, Euro, and Yen (Japan).
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