6 Types Of Bank Accounts In India
In today’s time it’s hard to imagine our lives without a bank account whether you are a college student, housewife, retired personnel, a business, or an Indian residing abroad.
Indian Banks offer a wide variety of accounts to fit multiple needs of their customers based on location, purpose, frequency of transactions, minimum balance etc.
In total, there are six types of bank accounts in India:
- Savings Account
- Current Account
- Salary Account
- Fixed Deposit Account
- Recurring Deposit Account
- NRI accounts –
a) Non- Residential Ordinary Accounts ( Savings or Fixed)
b) Non – Residential External Account ( savings or fixed)
c) Foreign Currency Non-Residential Account
Savings Account
A savings bank account is a regular deposit account, where you save your idle/excess money and earn a minimum rate of interest on it.
Interest rate – The interest varies from bank to bank but it ranges between 2% to 5%
Minimum Balance – There is a minimum balance requirement that varies from bank to bank. Certain banks offer zero-balance accounts as well.
Suitable for – Students, senior citizens, women, institutional savings accounts, family savings accounts etc. One can open a savings bank account individually or jointly.
Limitations – You can make an unlimited number of deposits in the bank account but there is a limit on the number of times and amount of withdrawal.
Current Account
Current accounts are mostly business accounts where there are multiple transactions every day. A few current accounts also facilitate foreign currency transactions.
Interest rate – Unlike savings accounts, where you earn some interest, banks do not pay any interest on these accounts.
Minimum Balance – A current account has a higher minimum balance requirement than savings accounts and a non-compliance of this would lead to a penalty. A prominent feature of current accounts is overdraft facility, that is withdrawing more than what is currently available in the account.
Suitable for – Businesses with multiple transactions in a day, corporations, entrepreneurs, associations, and Institutions.
Limitations– There is no limit on the number of withdrawals or the number of deposits per day.
Salary Account
As the name suggests, a salary account is where the company credits the salary every month. These accounts have to be opened as per the tie-up between the bank and the employer. Each employee is eligible to maintain a salary account in which the company they are employed with credits a monthly salary.
Interest rate – Employees do not give any interest on salary accounts. Instead, the bank provides various offers on a salary account if transactions are done through a debit/credit card linked to it.
Minimum Balance – These are bank accounts with zero balance and the employee can withdraw all the amount deposited in the account at any point in time.
Suitable for – Employee
Limitations- There is no restriction on the deposits in a salary account. Independent transactions can be made by employees to transact between this kind of bank account with another. These accounts can be converted into savings accounts at any point in time by the employee. If there is inactivity for more than three months, banks hold the right to convert these accounts into savings accounts.
Fixed Deposit Account
Fixed deposit(FD) is a very popular and safest investment plan to save and earn a steady interest on a lump sum of money locked in for a given time. The only tradeoff is that you have to fix or block the deposit amount until maturity.
FDs range between a maturity period of seven days to 10 years.
Interest rate – The rate of interest you earn on the money parked in your FDs will vary depending on the tenure of the FD and from bank to bank.
Minimum Balance – As this account holds lump sum of money as an investment, the minimum amount is a slow as INR 5000 for most banks in India.
Suitable for – Anyone who wants to begin investing.
Limitations – There is no limit on the money that can be put in a fixed deposit account. The higher the amount, the more interest is paid at the end of the account’s tenure. ****Generally, you cannot withdraw money from an FD before it matures. If you break it in the middle of its tenure, you risk losing out on the interest and often receive only the principal amount.
Recurring Deposit Account
These accounts are the easiest ways to earn an income higher than that offered by savings accounts. Unlike FDs, where you need to make a lump sum deposit, the sum you need to invest here is smaller and more frequent.
The maturity period of an RD could range between six months to 10 years.
Interest rate – A fixed amount is deposited every month and collected in the RD account, where it earns interest month-on-month typically between 2.5% – 8.5% depending on the bank.
Minimum Balance – The minimum deposit amount varies majorly from one bank to another. You can opt to invest with as little as INR1,000 per month.
Suitable for – Anyone who wants to begin investing.
Limitations – You cannot change the tenure of the RD and the amount to be invested each month or quarter. You face a penalty in the form of a lower interest rate for premature withdrawal in the case of RDs.
NRI Account
NRI bank accounts are for Indians who live overseas and wish to have a bank account in India. There are three types of NRI accounts that can be opened:
a) Non- Residential Ordinary Accounts (NRO) –
This account is for NRIs who have a source of earnings in India and they want to manage it there. When NRIs park their money in these accounts, usually in foreign currency, it is converted into INR at the prevailing exchange rate.
These accounts are unaffected by the impact of a prospective change in the rate of conversion.
An NRI can open a current account, a savings account or a fixed deposit account via the NRI account.
Interest rate – The income earned on these deposit accounts is taxed. The principal and the interest earned on that principal fall under the taxable category.
Minimum Balance – No minimum balance as such
Suitable For – Non-Residential Indian
Limitations– There is no limit to how much money can be put in an NRO account. The deposits can be made in foreign and Indian current but the withdrawals can only be in INR.
b) Non – Residential External Account
These accounts hold deposits in INR and are only for your earnings from abroad (foreign currency). Any money deposited into these accounts is converted into INR at prevailing exchange rates.
NRIs can save the money they earn outside India. This account doesn’t attract any taxes or interest.
These accounts are affected by the impact of a prospective change in the rate of conversion. An NRI can open a current account, a savings account or a fixed deposit account via the NRE account.
Interest rate – The interest earned on these deposit accounts is not taxed in India.
Minimum Balance – Any amount of balance can be maintained
Suitable For – Non-Residential Indian
Limitations – There is no limit to how much money can be put in an NRE account. However, the deposits need to be made in foreign currency but the withdrawals will be in INR.
c) Foreign Currency Non-Residential Account
FCNR accounts are maintained in foreign currency unlike the other two. This is a Fixed Deposit account that offers a fixed interest rate upon maturity.
These accounts hold deposits in the currency approved by the central bank of India, the Reserve Bank of India.
These accounts bear the impact of a prospective change in the rate of conversion.
Interest rate – The interest earned on the deposits is not taxed in India.
Minimum Balance – Any amount of balance can be maintained.
Suitable For – Non-Residential Indian
Limitations- There is no limit to how much money can be deposited in an FCNR account. The maturity tenure is a minimum of one year and a maximum of 5 years. Premature withdrawal is allowed by Banks but Interest is paid only post-completion of 1 year.
Conclusion
Indian banks offer a variety of bank accounts to cater to the different financial needs of people. Not just Indian citizens but NRIs too.
