Types of Accounts and Deposits
03 जुलाई 2019
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.
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 The common feature among all Time deposits is that they cannot be withdrawn prematurely.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.
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.
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
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.
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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Things You Will Need To Open A Bank Account
A leading bank like Bank of Baroda offers a bouquet of savings accounts that you can pick from to park your salary and income from other sources with, while earning some interest based on the type of bank account you choose to open.
At the end of the day, your needs are as unique as you. From daily transaction to fulfilling your professional goals, our savings bank accounts are one stop solution for all your needs. Access your account and transact from anywhere, anytime with our digital banking services.
Before you do that, here are a few documents you will need to keep handy to open a savings bank account.
What are KYC norms?
Know Your Customer norms apply to everyone who wishes to open a bank account. KYC is certain basic information that the banks need to have about the applicant. This information is backed up by necessary documents submitted by the applicant to authenticate his/her identity. This is basically to weed out potential frauds and monitor suspicious high value transactions that may be related to illegal trades, money laundering or other financial scams.
The documents you will need to submit while applying for a bank account are-
Proof of identity
For this, you can provide
Voter ID Card
Government/Defence ID Card
Pension Payment Orders issued to the retired employees by Central/State Government Departments, Public Sector Undertakings
Photo ID Cards issued by Post Offices
Photo identity Cards issued to bonafide students by a University, approved by the University Grants Commission (UGC) and/or an Institute approved by All India Council for Technical Education (AICTE)
Proof of address
You can provide any of the following as proof of address
Income tax assessment order
Utilities like electricity bill, landline bills-not older than 2 months.
Letter from employer/public authority (should be validated by bank)
Voter ID card
Retired government employees can produce pension payment orders
Registered leave and license agreement or sale deed or lease agreement.
Please note, every time there is a change of address or change in any other detail furnished to the bank, the applicant will need to immediately notify it to the bank along with updated document proofs.
2 latest passport size photographs
The Next Steps
After having all the documents in place, applicants need to fill up the bank account opening form. Fill up all the mandatory fields. For questions or enquiries about the form, a customer representative is always available for help during the branch’s working hours.
Now, the application form along with the above documents needs to be submitted at the bank branch. Applicants should keep the originals with then, which will be required for verification purposes.
Bank executives examine and verify the documents and that the details submitted in the form matches with that on the document proofs like name, date of birth, address, signature among others.
Applicant may be asked to make a token deposit for account opening. This does not apply to zero-balance accounts.
The applicant will receive a debit card and other welcome literature on the address submitted by them in the application form.
What is current account
Banks offers several kinds of accounts to customers depending on their needs. Two of the most popular are savings account and current account.
So what is current account? Current account is for those who have a very high volume of transactions – whether debit or credit. Hence it is meant for conducting a business, and generally opened for businessmen, traders and service providers. Sometimes current accounts are also called demand deposit accounts. No interest is paid on these accounts, sometimes even a fee is charged for banking services.
To understand the current account meaning, let’s look at its various features.
Current accounts are meant to ensure a high level of liquidity. Money flows constantly in and out of an account. Customers use it not as an investment, but as a tool to facilitate daily business transactions. They issue cheques to those with whom they have business dealing, and, in turn, receive cheques from them.
One feature of a current account is that deposits made in it does not earn interest. This is because, as we have pointed out earlier, the current account definition is that it’s a tool for conducting business, not an investment avenue. On the other hand, a savings account earns some interest for customers – albeit small. However, there are some banks that offer a sweep-in facility. That is, if the balance reaches a certain level, it is automatically transferred to a savings account or a fixed deposit, where it can earn some interest.
When you are finding out what is current account in bank, you need to understand the concept of an overdraft. Business transactions are quite fluid and rapid, and sometimes there could be a gap in the inflows and outflows. Banks in that case provide an overdraft facility so that any cheques issued are not dishonoured.
Difference between savings account and current account
Now that we explained what is meant by current account, let’s compare it with a savings account. How different are the two accounts?
Interest rates: Savings banks offer interest to encourage customers to save. Current account is focused on money flows, so no interest is offered. In fact, charges may be levied.
Target customers: The target customers of a current account are businessmen, traders and service providers. Savings accounts are meant for individuals, especially for salaried persons with a monthly income.
Minimum balance: Both savings accounts and current accounts require a minimum balance to be maintained. However, this is higher in the case of current accounts.
Overdraft: While a current account offers overdraft facility, no such facility is available in a savings account.
Number of transactions: The number of transactions allowed in a current account is quite large. It’s much smaller in the case of Savings Accounts
Advantages of current account
Enables businesspersons to keep the flow of money smooth, and get and make payments on time.
Overdraft facilities are available to tide over any temporary cash flow issues.
Internet and mobile banking enable smooth and error-free transactions.
Very handy for large volume of transactions.
All Indian banks offer current account facilities. You can open one in any bank by completing formalities like submitting PAN card, Certificate of Incorporation, address proof of the company, ID and address proof of partners and directors etc.