Bank Deposits in India: Compare Different Types and Interest Rates

Different Types of Bank Deposits in India India offers various types of bank deposits to cater to the diverse financial needs of customers. These deposit options include Current Deposits, Fixed Deposits, Recurring Deposits, Term Deposits, and more. In this comprehensive guide, we’ll explore the different bank deposit types available in India, providing a clear understanding of each.

Varieties of Bank Deposits in India

Deposit Rate

In deposit terminology, the Deposit Rate signifies the interest amount disbursed by a bank or financial institution on cash deposits. Banks offer deposit rates on savings and various investment accounts.

Current deposit

Also known as a demand deposit, a current deposit allows depositors to withdraw funds at any time using checks. Typically, business professionals open current accounts with banks. These current accounts do not accrue interest since the deposited amount is repayable on demand without restrictions. bank deposit types in india

The Reserve Bank of India prohibits the payment of interest on current accounts or deposits lasting 14 days or less, except when prior authorization is granted. Banks typically impose a small fee, referred to as incidental charges, on current deposit accounts based on the number of transactions.

Fixed deposit

The term “Fixed deposit” refers to a deposit that becomes repayable after a specified period has elapsed. Since it is only repayable after a predetermined duration, set at the time of opening the account, it is also commonly referred to as a time deposit.

Fixed deposits are highly beneficial for commercial banks. They can use these funds more lucratively by offering loans at higher interest rates and for extended periods. The interest rate for fixed deposits is determined by the deposit period, with longer durations resulting in higher interest rates. bank deposit types in india

The Reserve Bank of India establishes the rules governing the interest rates offered on fixed deposits.

Savings deposit / Savings Bank Accounts

The savings deposit account is designed for individuals seeking to save modest amounts from their current earnings. This type of account can be opened with or without a checkbook facility, but there are limitations on withdrawals from this account.

Holders of savings accounts are also permitted to deposit items like checks, drafts, dividend warrants, and more, which are made out in their name, for collection by the bank. To open a savings account, it is a prerequisite for the depositor to be introduced by someone with either a current or savings account at the same bank. bank deposit types in india

Recurring Deposits

In this deposit scheme, depositors must contribute a set sum of money every month for a predetermined duration. The monthly installment could range from Rs.5 to Rs.500 or more, and the account’s duration may vary from 12 months to 10 years. Upon the conclusion of the specified period, the customer will receive their entire deposits, including the accumulated interest on those deposits. bank deposit types in india

Miscellaneous Deposits

The bank has introduced various deposit schemes to appeal to a wide range of individuals, including the Home Construction deposit scheme, Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, mini deposit scheme, and more.

There are two types of deposits

Demand deposits

The funds held in our savings accounts serve as a medium of exchange, and these are known as Demand deposits. This is because the ownership of these deposits can be transferred between individuals through methods such as cheques or electronic transfers.

Demand Deposits do not have a fixed term to maturity.

Time Deposits, on the other hand, are like fixed deposits (FDs) where no cheques are drawn. They are paid upon maturity at a specific time.

Current Account and Savings Accounts

Difference between Current Account and Saving Accounts

A Savings Bank Account primarily serves the purpose of helping customers save their liquid assets while also allowing them to earn some returns on their savings. These accounts are commonly favored by individuals and can offer liquidity, which can be beneficial for private individuals and small businesses.

In contrast, a current account is essentially a transactional account that finds favor among business professionals. The primary objective of current accounts is to provide flexible payment methods to businesses and entities. These methods can include special arrangements such as overdraft facilities, the accommodation of standing orders, direct debits, and offset mortgage facilities.

• Transaction Volume: Typically, savings accounts involve fewer transactions, whereas current accounts deal with a higher volume of transactions.
• Handling Approach: Savings accounts necessitate hands-on management of assets, while current accounts are designed to relieve account holders of direct management of their liquid funds. Current accounts are especially useful for businesses, ensuring smooth operations even during cash shortages or short-term deficits.
• Interest Earnings: Generally, current accounts do not accrue interest, while savings accounts in India yield an interest rate of 3.5% at present. The interest is compounded semi-annually. (Please note that in the event of the current account holder’s demise, their legal heirs receive interest at the rates applicable to savings bank deposits from the date of death until the settlement date).
• Overdraft Facility: As mentioned earlier, savings accounts do not offer overdraft facilities, whereas current accounts do. This allows account holders to borrow money for short-term needs, with an obligation to repay it along with interest.
• Minimum Balance Requirements: Savings accounts typically require a minimum balance to keep the account active. However, No Frill accounts may either have no minimum balance requirements or maintain very low minimum balances. Current accounts, on the other hand, do not have stringent minimum balance requirements.

CASA Deposits

CASA Deposits, short for Current Account and Savings Account Deposits, represent a category of low-interest deposits for banks compared to other types of deposits. Consequently, banks actively seek to boost their CASA deposits by providing various services, such as offering salary accounts to companies and encouraging businesses to open current accounts while utilizing their cash-management facilities.

Banks with a higher CASA ratio (CASA deposits as a percentage of total deposits) find themselves in a more secure position than those with lower CASA ratios. Banks heavily reliant on term deposits for their funding are more susceptible to interest rate fluctuations within the economy, often resulting in lower spreads on the interest they earn.

Term Deposits

1. Fixed deposits: These feature a fixed rate of interest paid at regular intervals.
2. Re-investment deposits: Interest is compounded quarterly and paid upon maturity, along with the principal amount of the deposit.
3. Flexi Deposits: These automatically convert any amount in savings deposit accounts beyond a fixed limit into term deposits.

Recurring deposits involve depositing a fixed amount at regular intervals for a specified term, with the repayment of the principal and accumulated interest occurring at the end of the term. These deposits are typically tailored for individuals who receive a regular income, such as salaried employees. A Recurring Deposit can generally be opened for any period ranging from 6 months to 120 months.

NRO, NE(E)RA and FCNA(A) Accounts

There are various types of accounts available for non-resident Indians, Persons of Indian Origin, and Overseas Citizens of India. These include:

1. Non-Resident Ordinary Accounts (NRO): Any person residing outside of India can open this account. Typically, when a resident becomes a non-resident, their domestic rupee account is converted into an NRO account. This account allows NRIs to receive credits earned in India, such as rent or interest from investments.
2. Non-Resident (External) Rupee Account (NRE): This account, initially introduced as the NRE scheme in 1970, is maintained in Indian Rupees. NRIs can remit money to India from their foreign funds through this account, exposing the depositor to currency rate risks.
3. Foreign Currency Non-Resident Account (FCNR): The Foreign Currency Non-Resident Account, known as FCNR (B), was introduced in 1993, replacing the previous FCNR (A) scheme. NRIs can open this account in six designated currencies, including the US Dollar (USD), Great Britain Pound (GBP), Euro (EUR), Japanese Yen (JPY), Canadian Dollar (CAD), and Australian Dollar (AUD).

Types of Bank Deposits in India (FAQ)