Deposit Products
A Bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A Bank connects with capital deficits to customer with capital surpluses.
Type of deposits
Demand Deposit: An account from which deposits funds can be withdrawn at any time without any notice to the depository institutions. This account allows you to demand you money at any time, unlike a term deposit, which cannot be accessed for a predetermined period (the loan’s term). Most checking and savings accounts are demand deposits, accessible by the account holder at any time.
Time/term Deposit: Term deposits held by an institution for a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the lender understands that the money can be withdrawn after the term has ended or by giving a predetermined number of days notice. Term deposits are extremely safe investment and are therefore very appealing to conservative, low-risk investor. By Having the money tied up we generally get a higher rate with a term deposit as compared to a demand deposit.
Type of Demand Deposits
- Saving Bank Account: A Saving Bank account is the most common account held by individuals and other for non-profit commercial transactions. A saving bank account facilities the holder to perform day-today banking transactions besides earning some return on the savings made. Banks generally put some ceilings on the total number of withdrawals permitted during specific time periods and stipulated certain minimum balance to be maintained in savings accounts. Normally a higher minimum balance is stipulated in cheque operated accounts as compared to non-cheque operated accounts. Banks as a rule do not give overdraft facility in a saving account, but allow occasional over-drawing to meet contingencies.
Who can open a Saving Account?
- By a Persons in his/her name
- By two or more persons in their joint names
- Both or all of them or the survivor or survivors of them
- Either or any one of them or the survivor or the survivors of them
- Former / latter or survivor of a particular person during his lifetime or survivors jointly or survivor
- Certain non-profit welfare organizations are also permitted to open Saving Bank account with banks.
- Current Account: Current accounts are cheque operated accounts maintained mainly for business purposes and hence are not entitled to any interest from the bank. Unlike savings bank account no limits are fixed by banks on the number of transactions permitted in the account. Banks generally insist on a higher minimum balance to be maintained in current account but the minimum balance could differ from bank to bank. Considering the large number of transaction in the account and volatile nature of balances maintained, banks generally levy certain service charges for operating a current account.
Types of Term Deposits
- Fixed Deposits (FD): A fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. It is also known as a term deposit or time deposit. They are considered to be very safe investments. Term deposits in India are used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a fixed deposit is that the money cannot be withdrawn for the FD as compared to a recurring deposit or a demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates. It’s important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 percent.
- 2 in 1 Account: Most of the banks have now come up with value added saving bank, current account and FD linked accounts. Such accounts are a combination of two schemes, mostly a running account like current account or saving bank account which offers customers a flexibility to use the balance in FD accounts in times of any emergencies. Here, the depositor is able to enjoy both liquidity and higher interest rate on FDs created out of the excess balance in running accounts. This product is called by different name in different banks, such as money multiplier, Super Saver Facility, Unlocked Fixed Deposit, and sweep in facility
- Recurring Deposits (RD): Recurring Deposits are a special kind of Term Deposits offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. It is similar to making FDs of a certain amount in monthly installments, for example Rs 1000 every month. This deposit matures on a specific date in the future along with all the deposits made every month. Thus, Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of fixed sum over a fixed period of time.
The Recurring Deposit can be funded by Standing instructions which are the instructions by the customer to the bank to withdraw a certain sum of money from his Savings/ Current account and credit to the Recurring Deposit every month.
When the RD account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates. If any installment is delayed, the interest payable in the account will be reduced and will not be sufficient to reach the maturity value. Therefore, the difference in interest will be deducted from the maturity value as a penalty. The rate of penalty will be fixed upfront. To calculate the maturity value of a recurring deposit account, there is a formula used by banks.
