BANK ACCOUNTProf. Isha Jaiswal

INTRODUCTION Deposits are the main source of funds for

commercial banks, which play a very important role in the economic life of the country through their assistance to trade, commerce, industry and agriculture.

One of the main functions of commercial banks is to accept deposits of various types on different terms and conditions.

TYPES OF DEPOSIT ACCOUNT1) Current Account2) Saving Account3) Fixed Deposits Account4) Recurring Account5) Non-residents’ Account

CURRENT ACCOUNT 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 favor 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 ACCOUNT The main objective of Current Account holders in

opening these account is to enable them 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 is paid.

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

Overdraft facility is given to current account holder.

ADVANTAGES OF CURRENT ACCOUNT Segregate business finance from personal finance. Professionalism in business. Ability to prove credit worthiness. Overdraft facility. Ease in banking transactions

SAVING ACCOUNT Commercial bank, co-operative banks, public

sector banks (like State bank of India, Bank of India, etc.) and postal departments accept deposits by way of opening saving bank account with them.

The 'saving account' is generally opened in bank by salaried persons or by the persons who have a fixed regular income. This facility is also given to students, senior citizens, pensioners, and so on.

Saving accounts are opened to encourage the people to save money and collect their savings.

FEATURES OF SAVING ACCOUNT The main objective of saving account is to promote savings. 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.

ADVANTAGES OF SAVING ACCOUNT Saving account encourages savings habit among salary earners and

others who have fixed income. It enables the depositor to earn income by way of saving bank interest. Saving account helps the depositor to make payment by way of issuing

cheques. Saving account passbook acts as an identity and residential proof of the

account holder. It provides a facility such as Electronic fund transfer (EFT) to other

people's accounts. It helps to do online shopping via facility like internet banking. It aids to keep records of all online transactions carried on by the

account holder. It provides immediate funds as and when required through ATM. The bank offers number of services to the saving account holders.

PROCEDURE TO OPEN SAVING OR CURRENT ACCOUNT Fill the account opening form. The vital points are name,

address, occupation and the amount to be deposited. Provide declaration of accepting the rules and regulations of

bank. An existing customer of the bank should introduce you to the

bank or from a respectable citizen known to the bank. The following are the documents to be submitted for

accounting opening procedure: Photocopy of Voter ID or Passport Address Proof Passport size photographs – 2

After submission, the bank complete the paper work and process your account opening form. On its completion the bank will send cheque book and debit card via post.

FIXED ACCOUNT Banks in India 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 the fixed deposit prematurely by paying a penalty .  

The rate of interest for Fixed Deposits differs  from bank to bank.   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.

 

FEATURES OF FIXED ACCOUNT The main purpose of fixed deposit account is to enable the

individuals to earn a higher rate of interest on their surplus funds. 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. 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% 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.

BENEFITS OF FIXED ACCOUNT Fixed deposit encourages savings habit for a longer period of

time.. Fixed deposit account enables the depositor to earn a high

interest rate. The depositor can get loan facility from the bank. On maturity the amount can be used to make purchases of

assets. The bank can get the funds for a longer period of time. The bank can lend such funds for short term loans to

businessmen. Fixed deposits indirectly boost economic development of the

country. The bank can also invest such funds in profitable areas.

RECURRING DEPOSIT ACCOUNT 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.  

Under these type of deposits, the person has to usually deposit a fixed amount of money every month.   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.

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.   

  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.

FEATURES OF RECURRING DEPOSIT ACCOUNT Recurring Deposit schemes aim to inculcate a regular habit of saving among

the public. Minimum amount that can be deposited varies from bank to bank. The minimum period of deposit starts at six months and the maximum period

of deposit is ten years. The rate of interest is equal to that offered for a Fixed Deposit and is hence

higher than any other Savings scheme. Premature and mid term withdrawals are not allowed. However, the bank

may allow to close the account before the maturity period, sometimes with a penalty for premature withdrawal.

RD offers the additional benefit of taking loan against the deposit, i.e., by using the deposit as a collateral. About 80 to 90% of the deposit value can be given as loan to the account holder.

The Recurring Deposit can be funded periodically through Standing Instructions which are the instructions given by the customer to the bank to credit the Recurring Deposit account every month from his/her Savings or Current account.

BENEFITS OF RECURRING DEPOSIT ACCOUNT Fixed monthly investment: A recurring deposit fixed monthly

investment builds up a savings discipline which is otherwise very tough to have in today’s society which is so spend oriented.

Fixed duration: The investment in a recurring deposit comes with a clear horizon. This allows the customer to plan for certain predictable events in their lives.

Fixed rate of interest: The rate of interest is locked-in in a Recurring Deposit, which as compared to certain other investment instruments insulates the customer from swings in the interest rates.

No TDS is applicable on recurring deposits Ease of investment: As a customer you can give a Standing

Instruction over your savings account to fund your Recurring Deposit with a fixed value every month. This makes it very easy to operate recurring deposits without actually visiting the bank branch.

NON-RESIDENTS’ ACCOUNTNon-Resident bank accounts are those, which are

maintained by Indian nationals and persons of Indian origin resident abroad. Bank branches can open ordinary non-resident accounts in the names of private individuals provided initial deposits for opening the accounts are received from abroad in an approved manner or the initial amount is tendered in foreign currency while on a visit to India or transfer of funds from the existing non-resident account of the same person. RIs / PIOs / OCBs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with an authorized dealer. Such accounts can be opened with banks specially authorized by the Reserve Bank in this behalf.

ORDINARY NON-RESIDENT RUPEE ACCOUNTS (NRO ACCOUNTS)  These are Rupee denominated non-repatriable accounts and can be in the form

of savings, current, recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National resident in India leaves for taking up employment, etc. outside the country, his bank account in India gets designated as NRO account. 

The deposits can be used to make all legitimate payments in rupees. Interest income, from NRO accounts is taxable. Interest income, net of taxes is

reportable. NRO account can be funded through any of the following sources: 1. By proceeds of foreign exchange remittance from abroad through

banking channels in an approved manner2. By proceeds of foreign currency notes and traveler cheques brought into

India by the non-resident while on a temporary visit to India3. By transfer from an existing non-resident account in the name of the same

person 4. By funds from a local source representing bonafide transactions in rupees

NON-RESIDENT (EXTERNAL) RUPEE ACCOUNTS (NRE ACCOUNTS)  These are rupee denominated accounts and can be in the form of savings, current, recurring or

fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repatriable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts. 

The deposits can be used for all legitimate purposes. The balance in the account is freely repatriable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI. Funds held in NRE accounts may be freely transferred to FCNR accounts of the same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders. 

Immediately upon return of the account holder to India and on his becoming a resident in India, NRE Account will be re-designated as Resident Rupee Account or converted to RFC account as per the option of the account holder. However, if the account holder is only on a short visit to India, the account will continue to be treated as NRE account. 

The initial deposit in NRE account can be made in any of the following manners:1. By proceeds of foreign exchange remittances from abroad through banking channels in an

approved manner2. By proceeds of foreign currency notes and traveler cheques brought into India by the non-

resident while on a temporary visit to India3. By transfer from an existing NRE Account of the same person