Account Types offered by a Bank

There are mainly four Types of account offered by banks to customers, I have mentioned all account ypes. This Question is the basic one and mostly asked during interviews.

Q1.What is  a Current Account ?  Who uses current accounts? Current Accounts in Banks

Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings.  These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day.  Most of the current account are opened in the names of firm / company accounts.   Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties.  No interest is paid by banks  on these accounts.  On the other hand, banks charges certain  service charges, on such accounts.   

Features of Current Accounts :

(a) The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly.

(b) There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits;

(c)  Usually banks do not have any interest on such current accounts.   However, in recent times some banks have introduced special current accounts where interest (as per banks' own guidelines) is paid

(d) The current accounts do not have any fixed maturity as these are on continuous basis accounts

Q2. What is a Savings Bank Account ?  Who uses Saving Bank Accounts ?

These deposits accounts are one of the most popular deposits for individual accounts.  These accounts not only provide cheque facility but also have  lot of flexibility for deposits and withdrawal of funds from the account.   Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these.   However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account.  Till 24/10/2011, the interest on Saving Bank Accounts was regularised by RBI and it was fixed at 4.00% on daily balance basis.   However, wef  25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI.    Under directions of RBI, now banks are also required to open no frill accounts (this term is used for accounts which do not have any minimum balance requirements).  Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits.  From the FY 2012-13, interest earned upto Rs 10,000 in a financial year  on Saving Bank accounts is exempted from tax. 

Q3. What are Recurring Deposit Accounts ?  Who use Recurring Deposit Accounts ? or RD accounts

These are popularly known as RD accounts and are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month.    Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits.   These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans or save for the future.

Q4. What are Fixed Deposit Accounts in India or Term Deposits

All Banks in India (including SBI, PNB, BoB, BoI, Canara Bank, ICICI Bank, Yes Bank etc.)  offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years.   These are also popularly known as FD accounts.   However, in some other countries these are known as "Term Deposits" or even called "Bond".    The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors  are supposed to continue such Fixed Deposits for the  length of time for which the depositor decides to keep the money with the bank.  However, in case of need,  the depositor can ask for closing (or breaking) the fixed deposit prematurely by paying paying a penalty (usually of 1%, but some banks either charge less or no penalty).   (Some  banks   introduced variable interest fixed deposits.  The rate of interest on such deposits  keeps on varying with the prevalent market rates i.e. it will go up if market interest rates goes and it will come down if the market rates fall.  However, such type of fixed deposits have not been popular till date).

The rate of interest for Fixed Deposits differs  from bank to bank (unlike earlier when the same were regulated by RBI and all banks used to have the same interest rate structure.   The present trends indicate that private sector and foreign banks offer higher rate of interest.  

The earlier trend that private sector and foreign banks offer higher rate of interest is no more valid these days.  However, now a days small banks are forced to offer higher rate of interest to attract more deposits.   Usually a bank FD is paid in lump sum on the date of maturity.  However, most of the banks have also facility to pay/ credit interest in saving account at the end of every quarter.  If one desires to get interest paid every month, then  the interest paid will  be at a marginal discounted rate.  In the changed computerized environment, now the Interest payable on Fixed Deposit can also be easily transferred on due dates to Savings Bank or Current Account of the customer.

In What Context Are  Terms Pledge, Hypothecation and Mortgage Used :

These terms are used for creating a charge on the assets which is given by the borrower to the lender as a security for any loan.  Thus, one of these terms will be normally used whenever an individual or a business firm avails any loan and the bank keeps some assets as a security, so that it will be able to sell the same in case that individual or the firm defaults in repayments.