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Types of Bank Accounts That You Must Know

IndianMoney.com Research Team | Posted On Tuesday, March 26,2019, 04:00 PM

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Types of Bank Accounts That You Must Know

 

 

You are generally under the impression that banks only offer two types of accounts: Savings accounts and current accounts. Banks also offer other kinds of accounts where customers can park idle funds and get interest along with other benefits. These are 5 different types of bank accounts and their features:

Savings Accounts:

Savings account is a type of account that can be opened by a depositor at the bank. This account is used to deposit money and earn interest. One of the main benefits is the liquidity of the saving bank account. A customer can access the account as per his requirements, and withdraw money whenever needed.

You can put aside money which is not required immediately. The interest earned on these accounts is based on the minimum average balance maintained in the account. Banks are free to decide the rate of interest on the savings bank account and the rate of interest varies across banks. Currently there are few banks that offer interest rate as high as 6-7% a year on daily or saving bank accounts.

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SEE ALSO:  Savings Accounts

Features of savings accounts:

Listed below are some of the features and benefits of a savings bank account:

  • The savings bank account is where depositors park surplus funds. A savings bank account can be used to keep emergency funds for unexpected situations that might arise in the future.
  • The money deposited in a savings bank account earns interest, quarterly. The rate of interest is lower than other bank deposits, as the funds are not invested (locked) for a particular period like an FD. Currently, the interest rate on savings bank account varies from 4% to 6.55% a year.
  • All savings accounts, whether held at a nationalised bank or any other financial institution, are always safe.
  • A savings account provides account holders with much needed liquidity. Banks usually provide account holders with debit/ATM cards that can be used to make a certain number of withdrawals from savings bank accounts.
  • An advantage for most savings bank account holders is that banks usually offer discounts on locker rental facilities for customers who maintain the minimum quarterly balance.

Basic Checking Accounts:

In India, checking account is known as ‘current account’. Current accounts are very popular in India. These accounts are apt for those who have regular transactions, especially businessmen. The current account can also be used for deposits and withdrawals along with other transactions.

These accounts are also known as demand deposit accounts. Most of the commercial, rural as well as co-operative banks, have the facility of current accounts. Current accounts are mostly availed by businessmen as single or joint accounts, due to the large number of transactions they carry out on a regular basis. However, the deposits that remain in the current account do not earn any interest.

Features of Current/ Checking Account:

  • The current account allows you make limitless withdrawals in line with the levied cash transaction fees.
  • There are no restrictions applied on the deposits made into the current accounts opened at the bank’s home branch. Additionally, account holders can also deposit cash at other branches on paying fees as applicable.
  • Cheques, pay-orders, or demand-drafts can be issued through a current account for making direct payments to creditors.
  • It facilitates the industrial progress of India, without which businessmen would face difficulties in running their businesses.
  • Businesses get more benefits by the presence of various other facilities like free inward remittances, deposits and withdrawals at any location, multi-location transfer and so on.
  • The current account offers overdraft facilities to account holders.
  • The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government.
  • Assists creditors of the account holder who have access to information on his credit-worthiness through inter-bank connections.
  • Offers Internet-banking and mobile-banking to enable account holders carry out important withdrawals and transfers promptly and with ease.

Recurring  Deposit Accounts:

A recurring deposit is a special type of account that helps depositors invest money. Recurring deposit is very popular and the deposits in these accounts earn compound interest on a quarterly basis. You can open a recurring deposit account as the minimum balance required is just Rs 100. 

RD account can be opened at any bank or post office. Longer the tenure of the monthly deposits higher the interest. A recurring deposit account helps build a corpus by depositing cash on a monthly basis and receive an attractive corpus on maturity.

SEE ALSO:  Recurring  Deposit Accounts

Features of Recurring Deposit:

Given below are the main characteristics of recurring deposits:

  • Recurring deposits help develop the regular habit of saving.
  • The recurring deposit can be made for a minimum of 6 months to a maximum of 10 years.
  • Generally, recurring deposits have high rate of interest and offer good returns.
  • A HUF can open a recurring deposit account with a post office or bank
  • The bank offers loan facility on recurring deposit at 75-90% LTV. (Loan To Value Ratio).
  • Recurring deposits can be withdrawn before maturity.
  • Senior citizens are eligible for higher interest rate at 0.50% higher than normal investors.

Flexi Fixed Deposit Account:

A flexi fixed deposit account helps enjoy the liquidity of a savings bank account as well as get high returns. As the name suggests it is a combination of a fixed deposit and a savings account, where the customers can get the benefit of earning higher interest than savings account as well as enjoy the liquidity of a savings account.

Features and Benefits of Flexi Fixed Deposit Accounts:

Given below are the features and benefits of Flexi fixed deposit accounts:

  • Attractive interest: The flexi fixed deposit accounts earns higher interest than the savings bank accounts.
  • Flexible tenure: The tenure for the flexi deposit scheme varies across banks. The customers deposit money as per financial requirements.
  • Investment amount: These accounts also give the depositors flexibility to choose the amount of money they wish to deposit. Different banks have different upper and lower limits for flexi fixed deposit accounts.
  • Premature withdrawal: Unlike fixed deposits, the flexi fixed deposit account allows you to make premature withdrawals that must align with the banks withdrawal policy.
  • Easy to open: The process of applying and opening a flexi fixed deposit account is easy and does not require too much documentation.
  • Auto renewal:  Banks generally allow auto renewal of flexi FDs, ensuring account holders don’t have to worry on renewals.

Certificates of Deposit (CDs):

A certificate of deposit is a savings instrument that is similar to fixed deposit. Unlike fixed deposit, certificate of deposit cannot be withdrawn before maturity. These deposits have a fixed maturity date and a specified rate of interest. The certificate of deposit was introduced in the Indian market in the year 1989. Certificates of deposit are issued by scheduled commercial banks and some select financial institutions in India and are monitored by the RBI. The RBI issues guidelines for certificate of deposit from time to time.

Advantages of Certificate of Deposits:

Some of the advantages of investing in certificate of deposits are summarized below:

  • The funds are safe as the certificate of deposit is issued by the government.
  • The government guarantees that you do not lose the principal.
  • These instruments are less risky than bonds and stocks and other volatile investments.
  • They offer better interest rate than savings/current accounts.

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