Types Of Bank Accounts In India

Bank is a financial institution where people and businesses can keep, invest, or borrow money, exchange currencies, etc. Banks are an important part of economy as banks provide the facility of saving money for future, borrowing money in need, making investment. Banks offer various services like,

1. Deposit accounts
2. Loans
3. Credit cards
4. Wealth management services
5. Insurance
6. Business banking
7. Check cashing services
8. Currency exchange

Bank account keeps your savings safe and also helps in compounding savings by allowing earn interest on your deposit. Banks are categorized as private banks, public sector banks or nationalized banks, foreign banks and cooperative banks which allow Indian citizens to open a bank account.

There are 6 kinds of bank accounts:

1. Savings Account
2. Current Account
3. Recurring Deposit Account
4. Salary Account
5. NRI Account
   1. NRO ( Non-Resident Ordinary Rupees) Account 
   2. NRE ( Non-Resident External Rupees) Account 
   3. FCNR ( Foreign Currency Non-Resident ) Account
6. Fixed Deposit Account

1. Savings Account

Savings account can be opened by individual or group of two people with an aim to save money. Aadhaar card and PAN card are mandatory to open a savings account.

Features of a Savings Account

• No limit to the amount of money that can be saved in a savings account. There is no limit to the number of times account holder can deposit the money. But, there is restriction on number of withdrawal.
• Minimum balance need to be maintained by account holder depends upon the bank. Few bank has no minimum limit and few bank has minimum amount to in savings account.
• Account holders can get an ATM/Debit/Rupay Card if they want to have.
• The main benefit of opening savings account is bank pays interest to account holder. The rate of interest varies from 4% to 6% per annum.
• Savings bank account is divided into two types:
  1. Basic Savings Bank Deposit Account (BSBDA)
  2. Basic Saving Bank Deposit Accounts Small Scheme(BSBDS)
• The savings bank account is mostly eligible for students, pensioners and working professionals.

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely, a basic savings & deposit accounts, remittance, credit, insurance, pension in an affordable manner. There is no requirement to maintain any minimum balance in PMJDY accounts. Withdrawals from PMJDY are limited at four per month, including ATM withdrawals. 

2. Current Account

Current account is not used for saving money. It is mostly used as business account where money is frequently transferred between financial accounts. These accounts are best suited for transactions by corporations and business owners for daily business activities. 

Features of Current Account

• Current account is mostly opened by businessmen. Current account is suited to Associations, Institutions, Companies, Religious Institutions and other business-related works.
• There is no limit to how much money can be deposited in a current account. And it also does not have a transaction limit. 
• Current account has higher minimum balance requirement than savings account.
• Current account does not have any fixed maturity.
• Overdraft facility is available for current account. Overdraft facility permits account holder to withdraw more money from the account than there is actually in the account. 
• Interest is not earned on such accounts.

3. Recurring Deposit Account

An investor can deposit a fixed amount on a fixed date to his/ her Recurring Deposit account for a predetermined interest rate and maturity. These accounts are mainly opened to earn interest as power of compounding helps to earn higher returns . RD accounts provide interest higher than that offered by savings accounts. 

Features of Recurring Deposit Account

• RD accounts help people to learn to save money.
• The minimum amount needed to open an RD may vary from bank to bank. Periodic or monthly instalments can be as low as Rs.50/- or may vary from bank to bank.
• The minimum deposit time is six months and the maximum deposit period is ten years.
• The interest rate varies from bank to bank but it provides higher interest than savings account.
• Nomination facility is available for RC accounts.
• Passbook is issued for this type of bank account.
• Premature withdrawal of the amount is permitted, but with penalty.

4. Salary Account

These accounts are opened by banks upon the request of big corporations and businesses that pay their employees through banks. A salary account is an account where the company credits the salary every month.

Features of a Salary Account

• There is no limit to how much money can be credited in a salary account.
• Independent transactions can be made by employees to transact between this kind of bank account with another. 
• A salary account is a zero balance account and employees can withdraw all the money at any point. 
• Overdraft facility is available.
• Banks provide ATM cards, debit cards, credit cards and cheque books to salary account holder.
• All fund transfers, including NEFT, IMPS, and RTGS, are also offered at lower rates.
• If account is inactive for more than 3 months then banks have right to convert salary account to savings account.

5. NRI Account

NRI account is opened by non-resident Indians. There are three kinds of NRI accounts that can be opened:

Non-Residential Ordinary Account (NRO)

This type of account holds deposits in Indian rupee denomination. NRO account manages income earned by NRI in India. 

Features of an NRO

• There is no limit to how much money can be credited in an NRO account. 
• Any amount of balance can be maintained. 
• The principal and the interest earned on that principal are taxable. 
• Current account, a savings account or a fixed deposit account can be opened by NRI via NRO account. 
• NRO account is unaffected by the rate of conversion.

Non-Residential External Account (NRE)

These accounts hold deposits in Indian rupee denomination. The money deposited is not income earned in India; it is the money deposited is earnings or savings from the country where the NRI lives.

Features of an NRE

• NRI account can be opened by an NRI along with an Indian citizen or another NRI.
• There is no limit to how much money can be credited in an NRE account. 
• There is no limit to maintain balance.
•  The principal and the interest earned on that principal are not taxable. 
• Current account, a savings account or a fixed deposit account can be opened by NRI via NRE account. 
• NRE accounts are subject to the impact of rate of conversion.

Foreign Currency Non-Residential Account (FCNR)

FCNR account is a kind of fixed deposit account opened for depositing income earned overseas. The account holds deposits in the currency approved by the central bank of India, the Reserve Bank of India. If the income is not in approved list of currencies, then an approved currency is chosen for the conversion of the earnings or the proceeds to be deposited.

Features of an FCNR

• There is no limit to how much money can be credited in an FCNR account. 
• There is no limit to maintain balance.
• The principal and the interest earned on that principal are not taxable. 
• FCNR accounts are subject to the impact of rate of conversion.
• An NRI can open only a fixed deposit account with a minimum maturity of one year via the FCNR account. 

6. Fixed Deposit (FD) Accounts

FD accounts are opened to earn interest on deposits for a fixed period of time until maturity. Fixed deposits are known to be safest financial instruments to save and earn interest on idle money.

Features of a Fixed Deposit

• There is no limit to how much money can be put in a fixed deposit account.
• An FD account is one time deposit account. 
• The rate of interest depends upon the amount deposited and the time duration of the FD.
• Interest is paid by the bank when the tenure of FD is completed.
• If FD is broken before tenure, consumer risk losing interest and receives only principal amount.
• FDs are considered to be risk-free investments with high returns.
• Higher rate of interest is offered by most banks in India; higher than savings accounts’ interest rates and RDs’ interest rates

Takeaway:

The banking system plays a major role in developing the economic growth by directing savings into investments and also by improvising allocative productivity of resources. It has been playing a major role in the upliftment of the small and medium scale entrepreneurs. Banking system is like a lifeblood for the economic activities in the country. We read about types of bank accounts in India with their detailed information.