Types of Bank Deposits
Bank Deposits can be broadly classified into two types:
- Demand Deposits: These deposits can be withdrawn from the account at any time without any advance notice to the financial institution. Current and Savings Accounts come under this category. The deposited funds are available through a variety of services like ATM, online banking, etc.
- Time Deposits: These deposits cannot be withdrawn from the account without any prior notice to the financial institution. These deposits have a fixed maturity period. No penalty is deducted if the amount is withdrawn after the maturity period. Fixed and Recurring Deposits come under this category.
- It’s a type of account wherein customers can deposit and withdraw amount as per their requirements for the primary purpose of Saving
- This type of deposit account is quite popular among individuals
- Savings Account usually restricts the number of withdrawals, as well as, the amount of withdrawal during any specific time duration
- Earlier, Savings Account Interest Rate was regulated by RBI. However, as of Oct 2011, it has been deregulated by RBI and banks can decide their own interest rate for Savings Account
- Public Sector Banks give 4% interest on Savings Account. But some small Private Sector banks like Yes Bank gives interest rate as high as 7%
- Usually, Savings Account requires a minimum balance. An exception is BSBDA (Basic Savings Bank Deposit Accounts) whose primary purpose is Financial Inclusion.
- The purpose of this deposit account is to facilitate smooth and efficient Business transactions
- There is no restriction on the number of withdrawals, or the amount of withdrawal per day from the Current Account
- No Interest is paid for the Current Account Deposits
- Banks charge some interest on such accounts for providing services
- Current Account holders also have the facility of Overdraft in case of short-term funds deficit. Overdraft means the account holder can borrow money up-to a specified limit for short-term. This money is later paid back to the bank with interest.
- Current Account does not have any minimum balance requirements.
- In Fixed deposit, the amount is repayable after the expiry of a specified time period aka maturity period
- These deposits are very profitable to the Banks. Since the amount is repayable only after the maturity period, Banks can utilize these finds more profitably
- The Interest Rate is quite higher than Demand Deposits (Savings and Current).
- Usually, the amount is repayable after the maturity period. However, it can be Broken (aka withdrawn) before maturity also. In such cases, a penalty is deducted from the final amount.
- The Interest Rate on Fixed Deposits was deregulated by RBI in 1997
- The rate of interest depends on the maturity period. Higher the maturity period, higher the interest paid.
- In Recurring deposit, the depositor is required to pay a specified amount every month for a specified time period aka maturity period.
- There are also Flexible Recurring Deposit accounts wherein the installments may vary from month to month
- These deposits are very popular for long term savings. Like for child’s future education, or for daughter’s marriage, etc
- The Interest Rate is higher than Demand Deposits (Savings and Current)
- Any default on payment in any month results in a small penalty
- Just like Fixed Deposit, Premature withdrawal is allowed albeit on a penalty
- The Interest Rate on Recurring Deposits has been deregulated by RBI long back