Banks are an essential part of the financial framework of a country. They are central to the smooth functioning of an economy, facilitating the flow of money and thus maintaining macroeconomic stability. When you open an account with a bank, you trust the institution with your funds, expecting it to keep your money safe and help you with financial planning. The money you store in the bank is further used by it for various investments, thus maintaining a constant flow of money.
Banks act as a secure system to store your money, where you can also avail interest depending on the account you choose. Moreover, banks also help you keep a definite record of your transactions as they regularly provide customers with periodic account statements.
Types of bank deposits
Financial institutions in India offer several types of bank deposits that target the different needs of consumers. You may want to have a bank account to store and save your money or to carry out your daily transactions, which nowadays has become much easier than holding liquid cash, given the ease of digital payments. On the other hand, you might also want a bank account to park your hard-earned money and ensure easy access to your funds.
For each requirement, you will find separate types of bank deposit accounts. Additionally, there are different types of bank deposits that help in reducing your tax liabilities.
In India, banks offer different types of bank deposit accounts. These include savings accounts, current accounts, salary accounts, fixed deposit or recurring deposit. Each of these serves a different purpose
Let us go through some of the most popular and important types of bank deposit accounts.
1. Savings account
A savings account is one of the most popular types of bank deposit accounts. This is a basic instrument you can use to save money. The primary function that a savings bank account serves is that it allows you to deposit your hard-earned money and earn a nominal interest on it over time. A savings account can be opened by any single individual or can be jointly held. It allows you to deposit money in the account as many times as required without any limitation. However, there might be a limit on how many times you can withdraw money from the account.
The rate of interest for savings accounts can be anywhere between 2% to 6% per annum, which helps you compound your savings over time. Having a savings account is as good as holding liquid cash because it allows you to withdraw money easily using an ATM or debit card. You can also use net banking services by applying for it while opening the account. Such accounts cater to your savings needs and are appropriate for students, working professionals, or anyone in general.
2. Current account
A current account is primarily used to carry out everyday transactions. Unlike the former, this account is not used for savings. The main difference between a savings account and a current account is that you will not earn any interest on a current account. However, one of the major upsides is that current accounts allow the overdraft facility. This means it will allow you to withdraw more money than what is in the account. Current accounts are ideal for those who make daily transactions, like businesses, corporations, or religious institutions.
3. Salary account
As the name suggests, salary accounts are used by working professionals for monthly salary transfers. These are opened by banks at the request of your respective companies. It allows the seamless transfer of salary every month, thus offering convenience to both the employer and the employee. In most cases, salary accounts have low or no minimum balance requirement.
Also read: Current account and savings account
4. Fixed deposit
Fixed deposit or FDs offer interests on deposits locked in for a fixed period. It is a one-time deposit account where a fixed amount is put in for a definite period, both of which are initially decided at the time of account opening. Based on the tenure of your deposit, your interest rate is also decided. Banks usually have different tiers offering interest rates depending on the amount deposited and the tenure for which it is locked in. These accounts offer higher interest rates than a regular savings account.
The cumulative money, that is, the principal amount and the interest, is paid out on the date of maturity. Unlike a savings account, you cannot withdraw the money until maturity. Banks usually levy a penalty in cases of premature withdrawals. Interest earned from fixed deposits is taxable after a certain point.
FD interest rates can vary across financial institutions. Hence, essential research is suggested before the opening of any such account. For example, a Bajaj Finance FD offers lucrative investment opportunities with interest rates up to 7.30% p.a.
5. Recurring deposit account
Recurring deposits, or RDs, can be used to save money on a monthly basis. You are required to deposit a fixed amount every month until the date of maturity. Both the amount and the tenure are decided at the time of account opening, and the final amount is paid out at maturity.
