Types of Accounts and Deposits

By: Bank of Baroda
Wed Jul 3, 2019
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What are the types of accounts and deposits available?

It’s important to know where you can save your money. As the rule goes, high-risk on your capital can result in a higher return while investing money in low-risk instruments would result in lower interest.

Banks, including Bank of Baroda offer a host of instruments that are what can be termed as low on risk and medium to low on return.

We shall now look at the various instruments that are available to a customer to deposit their money with the bank and earn returns.

Types of Deposits

A primary function for a bank is to mobilise public money. They do so in the form of deposits. There are two types of deposit accounts that you can open in a bank. They are time deposits and demand deposits.

Time Deposits

A Time Deposit also known as a Term Deposit is a deposit which has a fixed tenure and earns interest for the customer. The tenure varies for each instrument and may even change from bank to bank.

The most widely used name for time deposits is Fixed Deposits. The common feature among all Time deposits is that they cannot be withdrawn prematurely. One should thus plan their deposits according to their requirement for money going forward.

The more the money resides in the bank of a term deposit the more interest it earns. Banks pay higher interest in longer-term deposits than on shorter ones.

Fixed Deposits earn higher interest than a Savings Account because the former gives Banks leg room to lend to people who need the money for roughly the same time limit. For example, a one year fixed deposit in a bank can allow the bank to lend money to a person who requires a personal loan for one year period.

Commercial banks have over the years made Fixed Deposits more attractive by offering various frills like overdraft facility, zero cost credit cards, nomination facility, safe deposit lockers, internet banking among others.

Recurring Deposits

In this case, a fixed amount, as decided by the depositor, is deposited at regular intervals till the end of the tenure. The accumulated interest and the principal is given back to the depositor at the end of the tenure. The tenure of a recurring deposit can be anything from six months to 120 months.

Demand Deposits

As the name suggested, you can withdraw this deposit on demand. Such funds are held in accounts where it is easier to withdraw money either by going to the bank or an ATM. Savings and Current accounts are the two types of commonly used Demand Deposits account,

In such type of deposits, the risk is low but so is the return. However, there is one more factor that this type of deposit has and that is liquidity since money can be withdrawn at a moment’s notice.

The reason for the existence of such accounts is to provide the customer convenience of meeting his daily requirement of funds. It does not serve the purpose of ‘investment’ or ‘wealth creation’.

TYPES OF ACCOUNTS

Savings Account

These are interest-bearing accounts where the rate of interest depends on the bank where it is deposited. Further, there are restrictions in terms of the number of times money can be withdrawn from this account. These restrictions are also imposed by the bank and may vary between two banks. The depositor can withdraw his money by going to the bank and use the withdrawal slip or use his cheque book or go to an ATM and use his card. Money can also be transferred to someone else by using the cheque facility or using an electronic mode of transfer.

Current Account

This type of account is generally operated by companies and firms. These are the non-interest-bearing deposit and serve the purpose of providing liquidity. Since there are many transactions in these accounts, the cost of managing them is high. Hence banks ask the depositors to maintain a minimum deposit. Current accounts have overdraft facility which the banks provide the customers to meet their short-term liquidity mismatch.

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