Bank accounts are your money’s first home. It secures your money and valuables while also supporting you in multiplying your savings or investments, allowing you to make fruitful results on your investments.
In today’s world, not having a bank account is unthinkable, whether you are employed, a student, an entrepreneur, a partner in a partnership firm, or a non-resident Indian. Bank accounts have become an essential aspect of every person’s life.
Individuals in India can open a variety of bank accounts for a range of purposes. Without further ado, let us explore the different types of bank accounts in India.
There are generally four types of banks in India, and they are:
1. Private banks
2. Public-sector banks or Nationalised banks
3. Foreign banks
4. Cooperative banks
From these four categories, you can open a bank account with any or all of them
Types of Bank Accounts
Customers can open various kinds of accounts in more than one bank as per their requirements. The different types of bank accounts and their features are explained below-
Savings Account
The phrase is self-explanatory. It implies that these bank accounts are intended for individuals to save money. Any Indian resident with an Aadhaar card and a PAN can create a savings bank account. Both documents are mandatory if you wish to open a savings account.
Key Features
- For this type of bank account, there is zero limitation on the amount of money that can be deposited in most of banks.
- Depending on your bank, the total number of transactions may be regulated in some instances
- In most circumstances, a customer is obliged to maintain a mandated minimum balance to keep savings account open
- When the obligatory minimum balance criterion is not applicable, there are various exceptions. Let’s say you opened a savings account via the government’s financial inclusion scheme, called the “Pradhan Mantri Jan Dhan Yojana,” in which case there is no minimum balance requirement, and withdrawals when opened with this scheme are limited to four per month, including ATM withdrawals
- When it comes to interest, a customer gets interest on savings account deposits. This interest rate differs from one bank to another
- Savings accounts are the most convenient way to generate interest on dormant money in banks
Current Account
Current accounts are typically used for everyday business activities wherein funds are regularly transferred between bank accounts. These accounts are suitable for everyday business transactions by businesses and corporate officers.
The majority of current accounts are under the names of corporations or enterprises. These accounts are never intended for saving or investing. The account holder is permitted to withdraw at any moment without notifying the bank.
The bank does not pay interest on these accounts and instead levies these account holders for other services.
Key Features:
- The amount of money that can be transferred into a current account is unlimited, which means that current accounts do not include a transaction limit either
- The minimum balance of a current account is greater than that of a savings account.
- Customers do not earn interest on their current accounts
- If you’re wondering what the advantage of a current account is, it offers an overdraft option. These accounts allow their customers to withdraw more money from the bank than is actually in the account
- In general, a minimum balance is intended to be maintained at all times. There are no daily limitations or restrictions on the number of transactions or the amount deposited in current accounts
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Salary Account
Salary accounts are typically used by companies to credit employees’ salaries. These bank accounts are opened as part of a collaboration between the bank and the employer of a company or industry.
Each employee gets paid depending on their employees’ disbursements. It is a more simple and more convenient option for crediting the employee’s account.
Key Features
- When we talk about benefits, the salary account is beneficial not just to the company but also to the employee. The salary account has no minimum balance requirement
- The account holder can earn interest on the money in the account, with the interest rate determined by the kind of bank account
- If the salary has still not been deposited into the employer’s account for three months, the account can be turned into a savings account
- The account will thereafter require a minimum balance to be maintained. If the bank allows it and your company has a relationship with that bank, you can convert your savings account back to a salary account
- The amount of money that can be transferred in this kind of bank account is unlimited. Employees can conduct independent transfers between one type of bank account and another
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Recurring Deposit Account (RD Account)
These accounts are often referred to as RDs, which are the simplest method to generate a higher income than that provided by savings accounts.
Recurring deposit accounts are beneficial for people who do not have a large amount of money but wish to save a small chunk of their earnings each month. The recurring account has a preset duration. The account holder deposits a predetermined sum of money into the account on a monthly or quarterly basis.
These accounts are suitable for long-term savings if an individual wish to save funds for a child’s schooling, marriage, and so forth.
Key features:
- The initial deposit required to open an RD depends on each bank. It not only allows customers to open an RD account with their preferred bank but also to make a minimum deposit of INR 1,000 monthly
- Some banks additionally permit customers to deposit a greater number of payments up to a certain limit
- On the scheduled day of the month, the funds can be withdrawn from the bank. If the customer decides to withdraw the money prior to the expiration date, he must pay a penalty in the form of a lower interest rate
- This account’s most versatile feature is that it allows users to save money for as short a period as six months or as long as ten years and earn interest on the amount deposited
- RD accounts can also be closed before the term comes to an end without jeopardising the interest received
Fixed Deposit Account
FD Accounts are another name for Fixed Deposit Accounts. In this type of account, a set amount of money is placed in the bank for a defined period.
These accounts are created in order to receive interest on deposits for a specific time period until maturity. Fixed deposits are one of the most secure investment instruments for saving and earning interest on idle funds.
The individual deposits and withdraws the funds only once. Money invested in this bank account cannot be withdrawn before the term specified at the time of deposit expires. However, if the user wishes to cash out the funds before the expiration date, he may do so, but with a penalty.
Key features:
- There is no maximum limit that may be invested into a fixed deposit account. The greater the money allocation, the greater the interest paid after the account’s duration
- Banks pay high rates of interest on FD accounts, albeit the percentage differs from bank to bank. The Fixed Deposit Account has terms ranging from 7 days to 10 years
- Furthermore, the rate of interest on the fixed amount invested in the account will differ slightly based on the time duration of the FD selected by you
- Fixed deposits are low-risk and high-return investments. Due to the fixed-term benefits that a bank has with FDs, several banks in India provide FD interest rates that are greater than savings accounts and RD interest rates
- Banks may retain large funds for a defined duration of time, while customers can earn greater volatility-free returns, making the financial instrument a win-win for both banks and consumers
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NRI Accounts
Banks in India provide a variety of bank accounts and services to Indians and Indian-origin people living abroad who want to open a financial bank account in India. NRI accounts are classified into three categories:
1. NRO Accounts
- A non-resident ordinary bank account is another name for an NRO account. NRO accounts are rupee accounts, which implies they keep deposits in Indian rupees
- The funds deposited are from earnings in India. This bank account serves to convert foreign currencies into Indian rupees
- The money made in these accounts is taxed, and the individual can create an NRO account in any sort of bank accounts, such as a savings account, a current account, a fixed deposit, or an RD, depending on his requirements. This account can also be formed jointly with another person
- Any amount of the balance can be kept, as there is no maximum amount that can be deposited into an NRO account
2. NRE Accounts
- A Non-resident external account is another name for an NRE account. The Indian resident who has relocated to a foreign nation requires this account or can switch his account to NRE if his bank permits it
- Any funds deposited in this type of account are converted into Indian rupees at the current rate of exchange. In India, the interest collected on these bank accounts is not taxable. It is exempt under Section 10 (4)(ii) without any limit
- A prospective change in the currency rate has an impact on these accounts. The NRI can use the NRE account to open a savings account, a current account, or even a fixed deposit account
- The principal as well as the interest earned on the principal amount are not taxed. The benefit of this account is that there is no restriction on how much money may be deposited in it
3. FCNR Account
- An FCNR Account is a foreign currency non-resident account. This account pays interest, which is tax-free. These accounts keep savings in the currency authorised by India’s central bank, the Reserve Bank of India
- Any NRI or individual of Indian descent can keep deposits in a recognised currency through which they generate their earnings
- If the revenue is produced in a currency different from those on the authorised list, a permitted currency is chosen for the conversion of the profits or funds to be deposited.
- FCNR bank accounts are sometimes referred to as FCNR (B) accounts, where the ‘(B)’ refers to banks. Through the FCNR account, an NRI can only create a fixed deposit bank account with a minimum term of one year, and there is no restriction on the amount of money that can be deposited
In Conclusion
These are the most common types of bank accounts in India. Banking in India is tailored to various age groups and genders by both public and private financial institutions, allowing all residents to become financially empowered.
The interest rate on money saved in the bank varies depending on the kind of account and the bank itself. Therefore, before investing your money in bank accounts, you should familiarise yourself with the details of each type of bank account.
