Bank accounts in India are used primarily to keep money safely and securely. Apart from keeping the money safe, banks also provide various services such as loans, credits, and investment options. Banks in India fall under four categories: private banks, public sector banks or nationalized banks, foreign banks and cooperative banks. All these four categories allow citizens to open a bank account. A citizen of India can open a bank account in Savings, Current, Demat, fixed deposit, etc, which provide differing interest rates to the customers. This helps compound the investment or savings owing to the interest earned on the deposits made. To understand how to select a bank account that suits your requirements, you need to know the kinds of bank accounts that all four types of banks offer.
Types of Bank Accounts in India
Savings account.
A savings bank account is a regular deposit account, where you earn a minimum rate of interest. There are a variety of Savings Accounts based on the type of depositor, features of the product, age or purpose of holding the account, and so on. There are also savings accounts for children, senior citizens, women, institutional savings accounts, family savings accounts, zero-balance savings accounts etc. Savings accounts usually have a limit on the number of transactions while offering advanced features like auto sweep, debit cards, bill payments and cross-product benefits. A cross-product benefit is when you have a savings account with a bank and get to avail special offers on opening a second account such as a demat account.
Current account
A current account is a deposit account for traders, business owners, and entrepreneurs, who need to make and receive payments more often than others. These accounts hold more liquid deposits with no limit on the number of transactions per day. Current accounts also allow overdraft facility, that is withdrawing more than what is currently available in the account. Unlike savings accounts, where you earn some interest, these are zero-interest accounts. You need to maintain a minimum balance to be able to operate a current account.
Salary account
A salary account is the one where there is a tie-up between the employer and the bank and the salary of employees is credited at the beginning of the pay cycle. Employees can pick their type of salary account based on the features they want. The bank, where you have a salary account, also maintains reimbursement accounts; this is where your allowances and reimbursements are credited to.
Fixed Deposit Account
A fixed deposit (FD) account allows you to earn a fixed rate of interest for keeping a certain sum of money locked in for a given time, that is until the FD matures. FDs range between a maturity period of seven days to 10 years. The rate of interest you earn on FDs is higher than savings account and varies depending on the tenure of the FD. Generally, you cannot withdraw money from an FD before it matures.
Recurring deposit account
A recurring deposit (RD) is a deposit where need to invest a fixed sum of money in it regularly i.e. every month or once a quarter to earn interest. Unlike FDs, where you need to make a lump sum deposit, the sum you need to invest here is smaller and more frequent and for a fixed tenure. You cannot change the tenure of the RD and the amount to be invested each month or quarter. Even in the case of RDs, you face a penalty in the form of a lower interest rate for premature withdrawal.
NRI accounts
NRI bank accounts are for Indians or Indian-origin people living abroad. They include two types of savings accounts i.e. NRO or non-resident ordinary and NRE or non-resident external accounts. Banks also offer foreign currency non-resident fixed deposit accounts.
a) Non-resident ordinary (NRO) savings accounts or fixed deposit accounts. NRO accounts are rupee accounts. When NRIs deposit money in these accounts, usually in foreign currency, it is converted into INR at the prevailing exchange rate. NRIs can park money earned in India or overseas in NRO bank accounts. Payments like rent, maturities, pension, among others, can be sent abroad through NRO accounts. The income earned on these deposit accounts is taxed.
b) Non-resident external (NRE) savings accounts or fixed deposit accounts. NRE deposit accounts are like NRO accounts and the funds in these accounts are maintained in INR. Any money deposited into these accounts is converted into INR at prevailing exchange rates. These accounts are only for parking your earnings from abroad. The funds, both principal and interest, are transferable. The interest earned on these deposit accounts is not taxed in India.
C) Foreign currency non-resident (FCNR) account. As the name suggests and unlike the other two types of bank accounts, FCNR accounts are maintained in foreign currency. The principal and interest from these accounts are transferable, but the interest earned is not taxed in India.
Conclusion.
Understanding the different types of banking accounts available in India can help an investor to choose the one that best suits his/her financial needs. Whether you need a high-transaction account like a current account, a savings account to earn interest or a specialized account for NRIs, a banking product is available for you. Each type of account offers unique features and benefits, thus evaluating your financial goals and requirements is essential before deciding the type of account to open. Banks also make available a financial advisor or bank representative for consultation to ensure you select the best account for your needs. To effectively manage your finances, save more, and achieve financial goals an investor must leverage the right bank account.
