Banks in India provides the facility of opening a variety of account such as Fixed Deposit Account, Current account, Reccuring deposite account and savings account. Bank accept both Time Deposits and Demand Deposits. In case of time deposits money can be withdrawn only after a specified period of time comes to an end. Fixed deposit account and Recurring Deposit account are time deposits. In case of demand deposits, money can be withdrawn on demand. Savings account and current account type of are demand deposits. On the basis of consumer need and preference he can choose the type of account he want to open with the Bank.
- Fixed Deposits. In a fixed deposit, a fixed amount is deposited for a specified time period e.g. one year, three years, five years, etc. The deposit amount is repayable after the expiry of the fixed period. The customer is not allowed to withdraw the deposit before the expiry of the specified period. But he can borrow against the security of the deposit. At the end of the fixed period the depositor may renew the deposit. Alternatively he may withdraw the money along with interest. The bank can use fixed deposits without any risks of withdrawal before the due date. Therefore, a higher rate of interest is offered on Fixed deposits. The actual rate of interest varies with the period of deposit is being done. Generally, the longer the period of deposit, higher is the rate of interest. Fixed deposits are also called as ‘Time Deposits’ or ‘Long-Term Deposits’. Banks do not provide pass book and cheque bank facilities on fixed deposit accounts. A fixed deposit receipt, signed by the bank manager, is issued to the depositor. The receipt contains the name and address of the depositor, the amount of the deposit, the period of deposit and the rate of interest. The depositor can claim back his deposit on the due date by signing and submitting the deposit receipt. Fixed deposits are liked by depositors as they earn a higher interest in addition to safety of money. Banks have introduced several new schemes such as monthly interest plan, old age pension plan, etc. and several concessions to make fixed deposits more attractive.
- Recurring Deposits: In these deposits, the account holder is required to deposit a specified sum of money every month. Money is deposited in regular installments for a specified period of time. At the end of the period, the accumulated amount together with interest earned is paid to the deposit holder back. Withdrawals before maturity and cheque facility are not allowed. The deposit holder can gradually save money for purchase of household appliances e.g. scooter, refrigerator, TV, etc. and for education or marriage of children,etc. Recurring deposits are also called ‘cumulative time deposits’. A recurring deposit account is generally opened for a long time period e.g., five years, seven years, ten years, etc. In case of financial urgency, the account can be terminated. In that case, the account holder will get a lower rate of interest. Recurring deposit account is suitable for small savers. A pass book showing the deposit made every month is issued to the account holder.
- Savings Deposits: These deposits are meant primarily for general public. Their main objective of this type of account is to encourage habit of savings among people. For savings deposit, an account called Savings Account is opened with the bank. This account can be opened with a minimum amount, say Rs. 2000 ( varies upon the banks policies). Such an account can be opened by a person in his own name or in the name of a minor under his guardianship. Interest @ 3.5% ( currently) is paid on minimum monthly balances and is credited quartely to the savings account. The account may be with or without cheque facility. Money can be deposited any number of times. But there are certain restrictions on withdrawals and overdraft facility is not allowed in this type of account. A pass book is issued to the account holder.
Savings deposits provide facility for keeping money safe. Rate of interest allowed on these deposits is lower than that on fixed deposits. Savings deposit account is popular among salaried and other middle and low income groups of people. A savings account can also be opened in joint names. ATM card facilities can also be availed of on a savings account if the account holder wills.
- Current Deposits: Current deposits are made applied by businessman. For such a deposit a current account is opened with the bank. Deposits in this account can be made to any extent. Money can be withdrawn at any time by means of cheques. Cheques can be drawn as and when required by the depositor, overdraft facilities are provided on current accounts. Banks pay no interest and rather make a small charge on current accounts. Current deposits are also called ‘demand deposits’ because they are payable on demand by the depositors.
The advantages of a current account with the bank are given below:
The Account holder need not keep large amounts of cash in the office safe and, therefore, he can avoid the risk of loss by theft, fire, etc.
- The customer can obtain the assistance from the bank in the collection of cheques, bills of exchange and promissory notes. He can keep his securities in the safe custody of the bank. The bank can also be asked to collect dividends, interests, etc., on behalf of the account holder and to the credit of his current account.
- The customer gets the benefit of making all payments by cheques. He can withdraw money from a cheque.
- Whenever the customer is required to prove his financial positions he can give the reference of his current account bank balance.
- The account holder can obtain temporary financial accommodation in the form of overdrafts, discounting of bills, etc.
- The current account holder is also allowed remittance facilities. He can transfer funds from one place to another through bank drafts, telegraphic transfers, etc. Banks also issue travellers’ cheques to facilitate safe travelling in the country or abroad.
- The account holder can easily obtain a letter of credit in favour of a foreign, supplier for importing goods.
- A monthly statement of account is sent by the bank to a current account holder. It becomes very easy to prepare Bank Reconciliation Statement with the help of monthly statement of account from the bank.
The advantages of a current account with the bank are given below:
- The common disadvantage of a current account is that a minimum balance (mainly Rs. 10,000) has to be maintained per month. No interest is available on this account.
- The current account holder has to pay incidental charges to the bank.
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