Deposit Schemes

Fixed Deposits

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. It will go up if market interest goes up.

(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 go and it will come down if the market rates fall. However, such type of fixed deposits have not been popular till date).

Recurring Deposits

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 installment) 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.

Any miss in payment in the month attracts then small penalty

These accounts can be funded by giving Standing Instructions by which bank withdraws a fixed amount on a fixed date of the month from the saving bank of the customer (as per his mandate), and the same is credited to RD account.

Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months. A Pass book is usually issued wherein the person can get the entries for all the deposits made by him / her and the interest earned.

Banks also indicate the maturity value of the RD assuming that the monthly installment will be paid regularly on due dates.In case installment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments.

Premature withdrawal of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals).

These accounts can be opened in single or joint names. Nomination facility is also available.

Current Accounts/Deposits

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 :

  • The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly.
  • There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits.
  • 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
  • The current accounts do not have any fixed maturity as these are on continuous basis accounts

Saving Accounts/Deposits

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.

The interest on Saving Bank Accounts was regulared 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.