Commercial banks accept deposits from the public, basically for the purpose of lending. Deposits from the public are the principal sources of funds for banks.
Depositor want their money to be safe with the bank and wants to earn reasonable return.
The Process of deregulation of interest rates started in April 1992. Until then interest rates are fixed by RBI. Now banks have the freedom to fix their own deposit rated with very few exceptions.
Depositor want their money to be safe with the bank and wants to earn reasonable return.
The Process of deregulation of interest rates started in April 1992. Until then interest rates are fixed by RBI. Now banks have the freedom to fix their own deposit rated with very few exceptions.
Types Of Deposit Accounts
1. Demand Deposits
Demand deposits are defined as deposits payable on demand from one person to another through cheques and other clearing arrangements by banks. They have no fixed term on maturity.
2. Time Deposits
Time deposits are defined which are not payable on demand and have a fixed term of maturity.
No deposit accounts available in the name of Demand and Time deposits. There are several deposit account offered by bank classified in 3 major categories
- Current Account ( Demand Deposits Category)
- Savings Bank Account (Both Demand and Time Deposit Categories)
- Term Deposit Account ( Time Deposits Category)
Current Deposits
Current deposits are non-interest bearing.A Current account is basically a running and actively operated account with very little restriction on the number and amount of withdrawals. Banks insist on customers to maintain minimum balance if not bank will charge a certain amount.
Current accounts can be opened by rich individuals/ partnership firms / private and limited companies/ societies / trust etc
Savings Bank Deposits
Savings Bank accounts are used by large segment of small depositors as they can put their regular incomes into these accounts, withdrawal on demand and earn interest amount on the balance left in the account.
Savings bank account cannot be opened by big trading,government departments and bodies or business firms.
Term Deposits
Term deposit is a deposit received by the bank for a fixed period. Term deposits include Fixed Deposits/ Reinvestment deposits/ Recurring deposits.
Interest is paid on term deposits either on maturity or at intervals based on the scheme.
Customer can earn interest on term deposit for a minimum period of 7 days.
Interest rates on term deposits are higher than saving deposits.
CASA Deposits
Savings account deposits together with current account deposits called CASA deposits.
CASA deposits include offering salary accounts to companies, and encouraging merchants to open current accounts , and use their cash-management facilities.
Other Accounts
Minor Accounts
Savings bank account opened by minors along with their guardians, operated by guardians until the minor attains major.
Account of Illiterate/visually challenged persons
Account opened by banks at their own discretion, in the presence of mutually known witness,
Deposit Schemes for Senior citizens
Banks have developed fixed deposit schemes specially for senior citizens over the age of 60. Such schemes usually provide additional interest , over and above the normal interest on deposits across various maturities.
Dormant Accounts
Accounts which are not operated for a considerable period of time usually 12/24 months for savings accounts and 6/12 months for current accounts will be transferred to a separate dormant/inoperative account status.
Such accounts can be used again on an activation request to the bank.
NRO & NRE Accounts
NRI wants to transfer the overseas earned money back to India and NRI wants to keep India based earnings in India. NRI has the option of opening a Non Resident Rupee account (NRE) or Non-Resident Ordinary account (NRO).
Open by a Person of Indian Origin and an Overseas citizen of India.
Both accounts can be opened as savings as well as current account and are Indian Rupee accounts.
Need to maintain a minimum monthly balance of 75000 in both the accounts.
Differences between NRE and NRO Accounts
- NRE account is freely transfer both principal and interest earned. NRO account allowed to transfer upto 1 million USD net of applicable taxes in a financial year.
- NRE account is tax free. NRO account is subject to Indian tax.
- Earning income in India (rent/dividends etc) cannot deposit in NRE account but deposit of such earnings are allowed in NRO account.
- NRE account can jointly held with another NRI but not with resident Indian. NRO account can held with NRI as well as resident Indian.
Foreign Currency Non Resident Accounts
FCNR accounts was introduced on May 15th 1993.These are foreign currency accounts which can be opened by NRIs in only designated currencies.
These deposits can be opened in the form of term deposits.
Deposits are in foreign currency and are repaid in the currency of issue. There is no exchange risk for the account holder.
Transfer of funds from existing NRE to FCNR accounts or vice-versa is permissible without the prior approval of RBI.
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