We know that banks are pretty similar to your piggy banks. You can put your excess money in and retrieve it when required. So, should you deposit all your surplus cash in your bank account or your piggy bank? Your bank account is the better option as you get additional money for keeping deposits in the account. Let’s take a look at the common types of deposit accounts.
Different types of bank accounts
These accounts are the primary tools for depositing your excess money. Savings accounts balances can be used for making payments or withdrawing cash through cheques, Automated Teller Machines (ATM) cards, debit cards, internet banking, mobile banking, etc. Savings accounts are ideal for daily personal use like paying bills, school fees, shopping, etc. Interest on a savings account is credited quarterly. Maintaining a certain amount in the account as a minimum balance may require in some savings accounts.
Current accounts are mainly used for business transactions by companies and individuals. The modes of making payments or withdrawals are similar to that of savings accounts. Generally, current accounts don’t have a minimum balance requirement. Customers may be allowed to withdraw more money than the account’s balance in some current account variants. This facility is called overdraft. Typically, banks don’t pay any interest on current accounts.
What would you do when you want to buy an expensive gift for your sibling’s birthday? You would save money for a longer duration, right? Fixed deposits (FDs) will help you with that. FDs are for parking money in accounts for longer durations without using them for payments. The rate of interest depends on the duration of the deposit called maturity. Interest rates are generally higher than that of savings accounts and are compounded. Compounding of interest means that the interest earned on the original amount is also held in the account and will make additional interest. Other than compound interest is “simple interest.” The interest in this is applicable at a flat rate for the pre-decided period.
Recurring deposits are one of the best ways to teach regular savings habits. Like FDs, RDs also have a maturity period and interest rate slabs. The difference is that in an RD, the account holder has to deposit a fixed amount every month until the maturity of the RD.
While these were the basic types of deposit accounts, some specialised ones are as follows.
Now we know that having a bank account is better than keeping money in your piggy bank. But you could argue that you’re just a school-going kid. Will banks open accounts for you? The answer is yes!
Kids’ accounts are savings accounts for minors (below the age of eighteen). A guardian operates the account on behalf of the minor. However, children over ten years of age can have a self-operated account with restricted operations. Once the minor becomes an adult, the account becomes a regular savings account.
Salary accounts are opened for employees of companies to deposit their monthly salaries. It’s generally similar to a regular savings account.
Unlike other deposit accounts, where it is compulsory to keep a minimum balance, zero balance accounts don’t need any minimum balance to open or maintain an account. These accounts are opened primarily by businesses to diversify their funds and eliminate excess balance in one account. The amount needed is transferred from the master account and used for paying salaries, petty cash, etc.
A development finance institution (DFI), also known as a development bank, provides finance to public and private sectors for infrastructure and economic development projects on a noncommercial basis.
For Example, The Small Industries Development Bank of India (SIDBI), the National Bank for Agricultural and Rural Development (NABARD), National Housing Bank (NHB), etc.
These institutions provide unsecured microcredit to low-income clients, including micro-companies and the self-employed, who lack access to mainstream sources of finance from Banking Institutions. They also facilitate providing other financial services like insurance, remittance, and non-financial services like individual counselling, training and support to start micro-businesses.
THINK ABOUT IT!
How many of such government schemes do you know? Find out how many banks accounts your parents hold.