Types of Bank Accounts in India and Functions

Types of Bank Accounts

Different types of bank accounts are available for individuals or groups in both public and private banks across India. The existence of these accounts is a crucial part of the banking industry, and understanding them is important for financial and general banking awareness in competitive exams. This article explores the various categories of bank accounts found in almost all types of banks in the country.

A bank manages a customer’s financial account, commonly known as a bank account. It holds funds entrusted to a bank by a customer, allowing them to withdraw money as needed. The bank provides a statement detailing financial transactions within a specific period, and the account balance reflects the customer’s financial standing with the institution.

For those preparing for banking exams or interested in finance, it’s recommended to explore the following sections on banking awareness to learn more about the different types of bank accounts available in India.

Importance of Bank Accounts

Bank accounts are useful for managing money for individuals, companies, and institutions. Here’s why having a bank account is important:

Easy Transactions: You can easily take out money and make payments through your account, making transactions simple.

Safe Money Storage: Your hard-earned money is safe in a bank account. Even if the bank closes, you get your money back.

Affordable Services: Banks often provide services to account holders for free or at a low cost, making banking more affordable.

Opportunity to Grow Money: Banks usually offer interest on savings accounts, giving you a simple way to grow your money.

Access to Loans: Having a bank account makes it easy to get different types of loans from the bank.

How Many Types of Bank Accounts Are There?

In the past, there were only four types of bank accounts in operation in India, which were Current, Savings, Fixed Deposit, and Recurring Deposit Accounts. However, due to advancements in the banking sector, additional types of bank accounts have been introduced. These newly introduced accounts are DEMAT and NRI Accounts. Consequently, the current types of bank accounts operational in both public and private sector banks in the country include:

1. Savings Account:
   • Aimed at individuals for regular savings.
   • Generally offers interest on the deposited amount.
   • Limited number of withdrawals allowed.
2. Current Account:
   • Primarily for business and commercial purposes.
   • Ideal for frequent transactions.
   • Usually does not offer significant interest on the balance.
3. Fixed Deposit Account:
   • Involves depositing a lump sum amount for a fixed tenure.
   • Offers higher interest rates compared to savings accounts.
   • Premature withdrawals may attract penalties.
4. Recurring Deposit Account:
   • Requires regular monthly deposits for a fixed period.
   • Interest rates are generally higher than savings accounts.
   • Premature withdrawals may result in reduced interest.
5. NRI (Non-Residential Indian) Accounts:
   • Designed for Indians residing abroad.
   • Includes NRE (Non-Residential External) and NRO (Non-Residential Ordinary) accounts.
6. Senior Citizen Savings Scheme (SCSS):
   • Exclusively for individuals aged 60 years and above.
   • Offers higher interest rates and regular payouts.
7. Joint Account:
   • Shared account between two or more individuals.
   • Can be operated jointly or severally.
8. Demat Account:
   • Used for holding and trading in securities in electronic form.
   • Essential for investing in the stock market.
9. Salary Account:
   • Provided by employers to facilitate salary payments to employees.
   • May come with benefits like overdraft facilities and debit/credit cards.
10. Corporate Account:
    • For businesses and corporations to manage their finances.
    • May include various services like business loans and corporate credit cards.
11. Student Account:
    • Geared towards students with minimal or zero balance requirements.
    • Often comes with educational benefits and discounts.
12. Minor’s Account:
    • Held in the name of a minor with a guardian’s supervision.
    • Transitions to a regular account when the minor reaches a specified age.

Savings Account

A savings account is a popular choice for individuals looking to save money while earning interest on their deposits. It allows for the safekeeping of funds and offers a modest interest rate. While there is a limit on the number of withdrawals, this account provides easy access to funds, making it suitable for everyday expenses and emergency needs.

Features of Savings Account

• Modest interest rates on deposits.
• Limited withdrawals allowed.
• Easy access to funds for day-to-day expenses.
• Ideal for emergency savings.

Current Account

Tailored for businesses and commercial enterprises, a current account is designed to facilitate frequent transactions. It is characterized by features like no limit on withdrawals, overdraft facilities, and the absence of significant interest on the account balance. This account suits those with high transaction volumes and the need for seamless money management.

Features of Current Account

• No limit on withdrawals.
• Overdraft facilities available.
• Generally, no significant interest on the balance.
• Suited for businesses with high transaction volumes.

Fixed Deposit Account

Fixed deposit accounts involve depositing a lump sum for a predetermined period, providing a higher interest rate compared to savings accounts. This type is ideal for individuals willing to lock in their funds for a specific tenure, with interest rates generally fixed at the time of deposit. Premature withdrawals may result in reduced interest earnings.

Features of Fixed Deposit Account

• Lump sum deposit for a fixed tenure.
• Higher interest rates compared to savings accounts.
• Fixed interest rate at the time of deposit.
• Premature withdrawals may attract penalties.

Recurring Deposit Account

Geared towards regular savers, a recurring deposit account requires monthly deposits for a fixed period. It offers competitive interest rates, making it an attractive option for those with a consistent savings routine. Withdrawals before maturity may lead to reduced interest, emphasizing the importance of commitment.

Features of Recurring Deposit Account

• Regular monthly deposits for a fixed period.
• Competitive interest rates.
• Encourages a disciplined savings approach.
• Reduced interest on premature withdrawals.

NRI Accounts (NRE and NRO)

Non-Residential Indian (NRI) accounts cater to Indians living abroad and come in two main types—NRE (Non-Residential External) and NRO (Non-Residential Ordinary). NRE accounts are for foreign income, allowing repatriation, while NRO accounts manage income earned in India. Both accounts offer convenient ways for NRIs to manage their finances from abroad.

Features of NRI Accounts (NRE and NRO)

• NRE: For foreign income, allows repatriation.
• NRO: Manages income earned in India.
• Facilitates easy management of finances from abroad.

Senior Citizen Savings Scheme (SCSS)

Specifically designed for individuals aged 60 and above, the Senior Citizen Savings Scheme provides higher interest rates and regular payouts. With a fixed maturity period, it offers a reliable avenue for senior citizens to grow their savings while enjoying financial security during retirement.

Features of Senior Citizen Savings Scheme (SCSS)

• For individuals aged 60 and above.
• Higher interest rates and regular payouts.
• Fixed maturity period.
• Provides financial security during retirement.

Joint Account

A joint account allows two or more individuals to share ownership and management of an account. It can be operated jointly or severally, providing flexibility. This account type is beneficial for couples, business partners, or family members who want shared access to funds.

Features of Joint Account

• Shared ownership and management.
• Can be operated jointly or severally.
• Flexibility for couples, business partners, or family members.

Demat Account

Essential for those involved in stock market investments, a Demat account holds securities in electronic form. It enables investors to buy, sell, and manage stocks, mutual funds, and other financial instruments electronically. This account simplifies the process of trading and ensures secure storage of investment holdings.

Features of Demat Account

• Holds securities in electronic form.
• Facilitates buying, selling, and managing stocks.
• Simplifies the process of trading.
• Ensures secure storage of investment holdings.

Salary Account

Employers often provide salary accounts to facilitate hassle-free salary payments to employees. These accounts may come with benefits such as overdraft facilities, debit/credit cards, and other perks. They offer convenience for both employers and employees in managing financial transactions and accessing additional financial services.

Features of Salary Account

• Provided by employers for salary payments.
• May include overdraft facilities.
• Often comes with debit/credit cards and other perks.
• Convenient for managing financial transactions.

Corporate Account

Tailored for businesses and corporations, a corporate account provides comprehensive financial solutions. It includes services such as business loans, corporate credit cards, and customized financial products. This account assists businesses in efficiently managing their financial transactions and liquidity.

Features of Corporate Account

• Tailored for businesses and corporations.
• Offers business loans and corporate credit cards.
• Customized financial solutions.
• Efficient management of financial transactions.

Student Account

Designed to meet the unique financial needs of students, a student account typically comes with minimal or zero balance requirements. It often includes educational benefits, such as fee waivers, and may offer discounts on various services. This account aims to support students during their academic journey.

Features of Student Account

• Minimal or zero balance requirements.
• Educational benefits such as fee waivers.
• Discounts on various services.
• Designed to meet the financial needs of students.

Minor’s Account

Held in the name of a minor with a guardian’s supervision, a minor’s account serves as a safe and educational introduction to banking. It transitions to a regular account when the minor reaches a specified age, providing a seamless progression in financial responsibility. This type of account encourages financial literacy from a young age.

Features of Minor’s Account

• Held in the name of a minor with a guardian’s supervision.
• Provides an introduction to banking.
• Transitions to a regular account at a specified age.
• Encourages financial literacy from a young age.

Types of Deposit Account

Let’s explore each type of deposit account in more detail:

1. Savings Bank Account:
   • Purpose: This type of account is primarily designed to encourage individuals to save money over a period of time.
   • Features:
     • Interest: Savings accounts generally offer a modest interest rate on the deposited amount. The interest is typically lower compared to other types of deposit accounts.
     • Accessibility: Account holders can access their funds easily through various channels such as ATMs, online banking, and over-the-counter transactions.
     • Withdrawal Limits: While there is no fixed term for savings accounts, there might be certain withdrawal restrictions or limits to encourage long-term saving.
2. Current Deposit Account:
   • Purpose: Current accounts are designed to facilitate regular business transactions and are suitable for businesses, companies, and individuals with a high number of transactions.
   • Features:
     • No Interest or Low Interest: Current accounts usually offer little to no interest on the deposited amount.
     • Unrestricted Transactions: These accounts typically have no restrictions on the number of transactions, making them ideal for frequent withdrawals and deposits.
     • Overdraft Facilities: Current account holders may be eligible for overdraft facilities, allowing them to withdraw more than the actual balance in the account, up to a specified limit.
3. Fixed Deposit Account:
   • Purpose: Fixed deposits are intended for individuals looking to invest a lump sum amount for a fixed period at a predetermined interest rate.
   • Features:
     • Fixed Tenure: Fixed deposits have a predetermined maturity period, and the funds are locked in for that duration.
     • Higher Interest Rates: Compared to savings accounts, fixed deposits offer higher interest rates, providing a more attractive option for those willing to commit their funds for a specific period.
     • Penalty for Early Withdrawal: Withdrawing funds before the maturity date may result in a penalty, making it essential for depositors to commit to the agreed-upon term.
4. Recurring Deposit Account:
   • Purpose: Recurring deposit accounts are designed for individuals who want to save regularly over a fixed period but may not have a lump sum amount for a fixed deposit.
   • Features:
     • Regular Monthly Deposits: Depositors commit to making regular monthly contributions to the recurring deposit account.
     • Fixed Tenure: Similar to fixed deposits, recurring deposits have a predetermined maturity period.
     • Interest Accumulation: Interest is earned on the monthly deposits, and the total amount (principal + interest) is paid out at maturity.

Each type of deposit account serves different financial needs, catering to the diverse requirements of individuals and businesses. The choice of account depends on factors such as financial goals, liquidity needs, and the willingness to commit funds for a fixed period.

Types of Bank Accounts – Conclusion

In conclusion, the diverse array of bank accounts in India caters to the varied financial needs and goals of individuals and businesses.

From the fundamental savings account for everyday transactions to specialized accounts like fixed deposits and demat accounts for specific financial activities, each type serves a unique purpose.

Whether aimed at promoting savings, facilitating international transactions for NRIs, or fostering financial education for minors, these accounts contribute to a comprehensive and accessible banking ecosystem.

Understanding the features and benefits of each account type empowers individuals to make informed choices aligned with their financial objectives, fostering a more inclusive and efficient financial landscape in India.