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Banking: Types of bank Accounts
A banking company in India is on which transäcts the business of banking which
means accepting deposits of money from the publie (for the purpose of lending
and investment), repayable on demand and withdrawable by cheques etc.
Types of Bank Accounts
(1) Saving Deposit Account: This type of bank account encourages the small
savings of [Link] deposits in this account are made by the persons
who wish to save a ittle out of their incomes: interest is paid at nominal
rate. say 4 percent per annum. The rate of interest is less than that of fixed
deposit account.
(2) Current Deposit Account: These deposit accounts are most suitable for
business organisation in this account, a depositor can deposit money any
number of time and can withdraw it as and when he/she requires it. No
interest is paid on these accounts, Rather, the bank may charge some
service charges Money can be wthdrawn from this account by cheque.
(3) Recurring Deposit (RD) Account: In this type of account a depositor
deposits a fixed amount of money on monthly basis for a tixed period. This
money cannot be withdrawn betfore the expiry of that fixed term except in
special circumstances. Rate of interest on RD account is generally higher
than that of Savings Account deposit.
Fixed Deposit (FD) Account: Money is deposited in fixed deposit account tor a
Fixed period, say 1year, 3 year or 5 years. The rate of interest in higher than that
of saving deposit account. The longer is the period of deposit, the higher will be
the rate of interest. this is because banks can use the money for a longer period.
the amount of deposits is repayable by the bank after the expiry of the fixed term.
If the depositor needs this money before the specified fixed period, then banks
can refund the money deposited after charging some discount.
Multiple Option Deposit Account: Multiple Option account is a combination of
savings account and fixed deposit account which provide specific options to the
depositors. It is a type of saving Deposits Account in which amount of deposit in
excess of a particular limit gets automatically transferred to Fixed Deposit
Account. And, in case sufficient funds are not available in Saving Deposits Account
to honor a cheque issued, the required amount gets automatically transferred
from Fixed Deposit Account to the Saving Deposits Account. The holder has two
benefits from this account he/she can earn more interest and it lowers the risk
dishonoring a cheque.
It is also called Multiple Option Deposit Scheme (MODS).
Banking Services
(1) Bank Draft: A bank draft (also known as Demand Draft) is an instrument
which is used for the transfer of funds. Anybody can obtain bank draft after
depositing the amount in the bank. A bank draft is drawn by a bank branch
on another branch or some other bank at the place of destination. The
bank charges some commission in lieu of issuing. A bank may issue bank
draft free of cost depending on the customer's relation with the bank:
(2) Banker's Cheque: A banker's cheque (also known as Pay Order) is issued to
transfer money like a bank draft. It refers to that bank draft which is
payable within the same city or town Banks issue banker's cheque for local
purpose and issue bank draft for outstations. The payee can deposit the
banker cheque in his/her account in same branch. If the payee does not
have an account in the issuing branch, then the banker's cheque will have
to be collected through the clearing house. The procedure for issue of a
banker's cheque is same as in case of a bank draft
(3) Real Time Gross Settlement (RTGS): Real Time Gross settlement refers to a
funds transfer system where transfer of funds takes place from one bank to
another on a "Real Time' and on Gross basis Settlement in real time means
that transactions are processed continuously throughout the RTGS business
hours. The transactions are settled as soon as they are processed, i.e., no
waiting period. Real Time Gross Settlement is available for funds transfer
within India only. This is the fastest possible money transfer system
through banks. Funds may be transferred through the RTGS using the
internet facility provided by banks. "Gross settlement means the
transaction 1s settled on one to one basis without bunching or netting with
any other transaction. Once processed, payments are final and irrevocable.
(4) National Electronic Funds Transfer (NEFT): National electronic Funds
Transfer refers to a nationwide system that facilitates individuals and firms
to electronically transfer funds from any bank branch to any other
individual having an account with any other bank branch in the country .
This scheme is at present available in the major cities. The settlement takes
place at a particular time. In this system, transfer of money takes place in
batches at regular time intervals. For example, National Electronic Funds
Transfer settlement takes place 6 times a day during the weekdays (at
09:30, 10:30, 12:00, 13:00, 15:00 and 16:00) and3 times during Saturdays
(at 09:30. 10:30, 12:00 and 13:00). Account-holders can transfer funds
through this system by using internet banking facility provided by the bank.
(5) Cash Credits A cash credit is a short-term cash loan to a company. The
borrower is sanctioned a credit limit up to which it may draw amounts from
the bank. This credit limit is determined by the bank's estimation of the
borrower's credit-worthiness. The bank provides this type of funding, but
only after the required security is given to secure the loan. Once a security
for repayment has been given, the borrower company can continuously
draw from the bank up to the specified amount.
(6) Bank Overdraft: The bank allows a customer to overdraw his current
account balance up to an agreed limit. The customer has to pay interest on
the amount overdrawn by him. The security for overdrafts is usually
financial assets of the account-holder such as shares, debentures, etc. lIt is
a temporary facility; and the rate of interest changed by banks is lower than
that on cash credit because the risk involved and service cost is less
