Having a bank account is not only essential, but a necessity in all walks of life. People are often confused about the difference between various types of bank accounts or are simply ignorant to understand how each bank account type functions, what are the facilities available on each account type, and how much the bank charges for maintenance of these accounts.
With advancement in banking technology, many banks are offering tailor made products to suit individual needs. While accounts may differ from bank to bank their purpose remain the same.
Many banks have different products on the basis of customer's age, income and gender. Based on the purpose, frequency of transaction, and location of the account-holder, banks offer a bouquet of bank accounts to choose from.
Here’s a look at the different types of bank accounts that are available for your convenience and why you should choose one over the other:
1. Current account
A current account is a deposit account for traders, business owners, and entrepreneurs, who need to make and receive payments more often than others. These accounts hold more liquid deposits with no limit on the number of transactions per day. Current accounts allow overdraft facility, that is withdrawing more than what is currently available in the account. Also, unlike savings accounts, where you earn some interest, these are zero-interest bearing accounts. You need to maintain a minimum balance to be able to operate current accounts.
2. Savings account
A savings bank account is a regular deposit account, where you earn a minimum rate of interest. Here, the number of transactions you can make each month is capped. Banks offer a variety of savings accounts based on the type of depositor, features of the product, age or purpose of holding the account, and so on. There are regular savings accounts, savings accounts for children, senior citizens or women, institutional savings accounts, family savings accounts, and so many more.
You have the option to pick from a range of savings products. There are zero-balance savings accounts and also advanced ones with features like auto sweep, debit cards, bill payments and cross-product benefits. A cross-product benefit is when you have a savings account with a bank and get to avail special offers on opening a second account such as a demat account.
3. Salary account
Among the different types of bank accounts, your salary account is the one you have opened as per the tie-up between your employer and the bank. This is the account, where salaries of every employee are credited to at the beginning of the pay cycle. Employees can pick their type of salary account based on the features they want. The bank, where you have a salary account, also maintains reimbursement accounts; this is where your allowances and reimbursements are credited to.
4. Fixed deposit account
To park your funds and earn a decent rate of interest on it, there are different types of accounts like fixed deposits and recurring deposits.
A fixed deposit (FD) account allows you to earn a fixed rate of interest for keeping a certain sum of money locked in for a given time, that is until the FD matures. FDs range between a maturity period of seven days to 10 years. The rate of interest you earn on FDs will vary depending on the tenure of the FD. Generally, you cannot withdraw money from an FD before it matures. Some banks offer a premature withdrawal facility. But in that case, the interest rate you earn is lower.
5. Recurring deposit account
A recurring deposit (RD) has a fixed tenure. You need to invest a fixed sum of money in it regularly -- every month or once a quarter -- to earn interest. Unlike FDs, where you need to make a lump sum deposit, the sum you need to invest here is smaller and more frequent. You cannot change the tenure of the RD and the amount to be invested each month or quarter. Even in the case of RDs, you face a penalty in the form of a lower interest rate for premature withdrawal. The maturity period of an RD could range between six months to 10 years.
6. NRI accounts
There are different types of bank accounts for Indians or Indian-origin people living overseas. These accounts are called overseas accounts. They include two types of savings accounts and fixed deposits -- NRO or non-resident ordinary and NRE or non-resident external accounts. Banks also offer foreign currency non-resident fixed deposit accounts. Let us quickly see the various types of bank accounts for NRIs-
a) Non-resident ordinary (NRO) savings accounts or fixed deposit accounts
NRO accounts are rupee accounts. When NRIs deposit money in these accounts, usually in foreign currency, it is converted into INR at the prevailing exchange rate. NRIs can park money earned in India or overseas in NRO bank accounts. Payments like rent, maturities, pension, among others, can be sent abroad through NRO accounts. The income earned on these deposit accounts is taxed.
b) Non-resident external (NRE) savings accounts or fixed deposit accounts
NRE deposit accounts are similar to NRO accounts and the funds in these accounts are maintained in INR. Any money deposited into these accounts is converted into INR at prevailing exchange rates. But, these accounts are only for parking your earnings from abroad. The funds, both principal and interest, are transferable. But, the interest earned on these deposit accounts is not taxed in India.
C) Foreign currency non-resident (FCNR) account
As the name suggests and unlike the other two types of bank accounts, FCNR accounts are maintained in foreign currency. The principal and interest from these accounts are transferable, but the interest earned is not taxed in India.
Some more options provided by some banks
Senior citizen savings bank account
As the name indicates the Senior Citizen Savings Bank Account, is tailor made for people above the age of 60. There are various benefits attached to it such as preferential rates of FD and comparatively less charges involved with fees and charges.
Women saving accounts
Many banks have accounts specially designed for women with features catering to women’s financial needs, investment and lifestyle needs. Some banks offer higher withdrawal limit with attractive benefits and cash back offers.
No-frill saving accounts
Individuals having a no frill account need not maintain minimum balance criteria or very low minimum balance. This was after instruction from the Reserve Bank of India to reach vast sections of the population. However, the no-frills account comes with certain restrictions, which vary from bank to bank.
Student savings account
Only few banks offer student savings account, with no minimum balance or very less balance to be maintained.
Inputs: Bank websites, GoodReturns