Types of Bank Deposits and Accounts in India

If you have opened a bank account in India, you must be knowing the fact that there are many types of features and deals that a bank offers. These deals are to cater to the various needs of the customers. Traditionally, there are four types of bank deposits in India, which are - Current Account, Recurring Deposits, Savings Accounts, and Fixed Deposit Accounts. Each type has its advantages.

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Today, we are going to discuss various types of bank accounts and deposits in brief:

Types of Bank Deposits and Accounts:

Savings Bank Account:

As the name of this deposit suggests, it is suitable for those who have a definite income and want to save some money. To understand this let us take an example: the regular salaried people incline savings account and it is best suited for them as well. Generally, for opening a savings bank account, you have to deposit a small amount as an initial deposit, which varies from bank to bank.

You can deposit money at any time in your savings account. The interest is earned as per the rate of interest offered by the bank and is paid on the balance in your account. You can deposit money in this account anytime. For withdrawing money from this account, you can either use an ATM card, issue a cheque, or sign a withdrawal form. Generally, there is a restriction on the number and amount of withdrawal from the savings account.

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Current Account:

A type of bank account that has lesser restrictions than a savings account in terms of transactions and withdrawals is known as a current account. Another name of the current account is a demand deposit account and is most of the opted by the businessmen for conducting their transactions smoothly.

You should select this account type only if you are a businessman (even if an owner of a small business) who has to perform multiple transactions daily. There is no limit on the number of transactions from this account in one day. The overdraft facility is also offered by the banks to its account holders.

This means, as an account holder of such an account, you can withdraw more money than that is in your account. In addition to this, there is no restriction to maintain a minimum balance in this account. The biggest disadvantage of having a current account is that the banks do not pay any interest on them and for maintenance and service bank charges hefty fees.

Recurring Deposit:

A special type of account wherein you do not have to deposit a lump sum amount rather you have to deposit a fixed amount every month. This fixed amount can be as low as Rs. 100 every month. When you want to incorporate a habit of savings, then you should open this account. The rate of interest offered on a current deposit varies from bank to bank and may range from 5% to 7% and different rates are provided to the senior citizens.

A recurring deposit can have different maturity ranges that may vary from six months to 120 months. You can give an order to your bank for withdrawing a specific amount every month, and this amount can be credited to the Recurring Deposit account regularly. However, the bank can charge some penalty for delay in an installment payment.

Another special feature of an RD account is that you can take a loan up to 80% to 90% of your deposit by the use of this deposit. There is no facility for premature withdrawal, and if you close your recurring deposit account before the date of maturity, then you have to pay the penalty.

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Fixed Deposit:

The fixed deposit is a type of investment instrument offered by banks, other financial institutions, non-banking financial companies. With a fixed deposit, your money is deposited for a fixed tenure and you get guaranteed returns. The interest on fixed deposits ranges from 5% to 9%. The rate of interest offered in a fixed deposit account is higher than what is provided in a savings account.

The tenure for which your money gets deposited in a fixed deposit ranges from seven days to 10 years. You may or may not have to have a separate account for opening a fixed deposit account with a bank. Some banks these days offer fixed deposits that provide tax exemption of up to Rs. 1, 50,000. You can use this tax exemption every year U/S 80C of the Income Tax Act, 1961.

Another advantage of opening a Fixed Deposit account is that the interest amount below Rs. 40,000 is free from tax. The interest amount is more than Rs. 40,000 is subject to TDS (Tax Deduction at Source). Same as recurring deposit, you cannot perform a premature withdrawal, however, you can shut-down the FD account prematurely.

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You can be charged a penalty in case of closing the FD account early. You must opt for a fixed deposit account when you are building a habit of saving. This is one of the safest investment portfolios as it offers guaranteed returns.

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*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Summing it Up!

With day-to-day advancement in technology and advancements in digital payments, banks provide the facility of online banking. You can open any of the aforementioned bank types online and as well as deposit and withdraw money through the internet. You do not have to go to the bank every month to see the balance in your account or update your passbook.

Everything can be performed online very easily. You can check the transaction details as well as the account balance online. With investment options like fixed deposits wherein you get a good rate of interest, you can save your money and get guaranteed returns. Fixed deposits are good for those who want to invest money for fulfilling their long-term goals. Even with a savings account, you get a respectable rate of interest, and you can save money. Recurring deposits are good for those who want to invest a fixed amount in a regular interval.

So, every account has its advantages and disadvantages and it is up to you which account type you need.

Written By: PolicyBazaar - Updated: 22 September 2021
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