Bank accounts assist in the safekeeping of your funds. At the same time, they let you receive interest on your deposits, which helps you multiply your investment or savings. In this article, we will share with you types of bank account.
Private banks, public sector banks or nationalised banks, foreign banks, and cooperative banks are the four types of banks that operate in India. Citizens of India can open a bank account with any of these four types of banks.
To understand how to choose a bank account that meets your needs, you must first understand the types of bank accounts that each of the four types of banks offers.
You can pick from six different types of bank account.
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Types of Bank Account:
A Savings Account is a spot where you may save money while earning interest. With the account, you also get a variety of services such as debit cards, internet banking, and online bill payments, among others. There is no set limit to how much money you can save. The allowed transactions, on the other hand, are determined by the sort of bank account you create.
Regular Savings Accounts, for example, have far lower minimum balance requirements than Privileged Savings Accounts. Joint Savings Accounts, Family Savings Accounts, Senior Citizens Savings Accounts, Kids Savings Accounts, and other types of savings accounts are available from banks.
Merits: A first bank account for children or teenagers, as well as an account for people wishing to earn interest on savings or hide funds they may otherwise spend.
Demerits: Savings accounts typically provide a lower interest rate than money market accounts and certificates of deposit (CDs). They don’t come with a debit card that can be used to make transactions (Provided your savings account and checking account are both at the same financial institution, you may be able to use your debit card to make ATM withdrawals from your savings account if your bank allows it). Furthermore, banks have often set a restriction of six withdrawals per month for users from these accounts.
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A current account is a deposit account for traders, company owners, and entrepreneurs who make and receive payments more often than other people. These accounts can retain more liquid deposits and have no daily transaction restriction.
Overdraft is a feature of current accounts that allows you to withdraw more money than is currently available in the account. Furthermore, unlike savings accounts, which pay interest, these accounts pay no interest. To be able to manage current accounts, you must maintain a minimum balance.
Merits: A current account has no limit on the amount of money that can be deposited and even there is no limit on the number of transactions. These accounts allow for an overdraft, allowing customers to withdraw more money from the account than is available.
Demerits: A current account’s minimum balance requirement is higher than that of a savings account. Current accounts do not pay any interest to customers.
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Recurring Deposit Account
A recurring deposit account, often known as an RD account, is a type of account in which the account holder is required to deposit a specified sum each month until the account reaches its maturity date. A recurring deposit account can be opened by an individual or an institution, either separately or jointly. The amount of periodic or monthly payments that must be contributed might be as low as Rs.50/- or vary by bank.
The length of time that an RD account can be opened ranges from 6 to 120 months. The rate of interest varies based on the bank with which you create an account. For RC accounts, there is also a nomination option. For this sort of bank account, a passbook is supplied. Premature withdrawal of funds is authorised if a penalty of a certain amount is deducted.
Merit: The RD’s variable duration makes it a cost-effective financial solution for consumers. Consumers can put money in an RD for a six-month to ten-year term and earn interest on the money they have deposited. Without losing the interest collected, RD accounts can be closed before the end of the term.
Demerit: Every month, a certain sum is taken and deposited in the RD account, where it pays interest month after month.
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Fixed Deposit Account
A Fixed Deposit Account is a sort of investment in which you may receive a fixed or consistent interest rate as well as guaranteed returns on your money. The sole disadvantage is that you must fix or block the deposit amount until it reaches maturity. The duration for fixed deposit investments vary from seven days to ten years.
You can pay a premature withdrawal penalty if you need to withdraw your FD before the end of the term. Fixed Deposit is the right place for those who do not want to take a risk with their money. As FD provides interest at a higher rate than a savings account and it does not include any risk.
Merit: FDs are low-risk, high-return investments. Due to the fixed duration benefit that a bank receives in the case of FDs, most banks in India give an FD interest rate that is greater than a savings account and RD interest rates.
Banks can retain large quantities of money for a set length of time, while customers may earn greater fluctuation rates, making the financial instrument a win-win for all parties.
Demerit: This deposit earns interest from the bank. When a customer breaks an FD during its term, they risk losing interest and generally just receive the principal amount.
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A salary account is where your employer deposits your monthly salary, as the name implies. Employers often form a partnership with a single bank and create accounts for all of their workers. Salary accounts may be used as zero balance accounts since you can withdraw the whole amount deposited.
Merit: At any moment, these accounts can be changed to savings accounts. Banks have the option to convert such accounts into savings accounts if there is no activity since the last three months, which are managed differently.
Demerit: Employees do not receive interest on their payment accounts.
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The option of an NRI account is accessible to meet the banking needs of a Non-Resident Indian or a Person of Indian Origin.
There are three types of NRI accounts:-
NRO Account (Non-Resident Ordinary Rupees) –
This account will allow you to quickly transfer your international profits to India. It’s possible to open an FD, Current, RD, or Savings account using it. Individuals or groups of people can open these accounts.
NRE (Non-Resident External Rupees) Account –
An Indian citizen’s account must be changed into an NRE account when he or she moves overseas to work. This account can be created jointly with a resident of India.
An FCNR (Foreign Currency Non-Resident) Account –
This account can be used to manage an overseas currency. It can only be taken out in the form of a term deposit and only when the maturity time has passed.
Merit: The amount of money that may be deposited into an NRE account is unlimited. It is possible to keep any level of balance. The impact of a potential change in conversion rate is borne by these accounts. An NRI can use their NRE account to open a fixed deposit account, a current account, or a savings account.
Demerit: The principal, as well as the interest produced on that principle, are not taxed.
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