There are two types of deposits:
1. Demand deposits: The money we keep in our saving accounts is like a medium of exchange and this is called Demand deposits. This isbecause ownership of this deposit may be transferred from one person to another via cheques or electronic transfers. There is no fixed term to maturity for Demand Deposits.
2. Time Deposits: If we deposit our money has an FD in the bank it becomes a Time Deposit on which NO cheque is drawn. They are paid on maturity at a particular time.
Current Account and Savings Accounts:
A current account is always a Demand Deposit and the bank is obliged to pay the money on demand. The Current accounts bear no interest and they account for the smallest fraction among the current, saving and term deposits. They provide the convenient operation facility to the individual / firm. The cost to maintain the accounts is high and banks ask the customers to keep a minimum balance.
On the other hand, Savings deposits , which are also demand deposits, are subject to restrictions on the number of withdrawals as well as on the amounts of withdrawals during any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits.
Savings deposits are deposits that accrue interest at a fixed rate set by RBI (3.5 percent as of January 2010).
Difference between Current Account and Saving Accounts:
The basic objective of a Savings Bank Account is to enable the customer save his / her liquid assets and also earn money on that saving. The Savings banks Accounts are preferred by individuals and provide liquidity for private and small businesses sometimes. On the other hand the current account is basically a transactional account which is preferred by business people. The basic objective of the current accounts is to provide flexible payment methods to the business people and entities. These payment methods include special arrangements such a overdraft facility, accommodation of standing orders, direct debits, offset mortgage facility.
1. Transactions: Usually saving accounts have low transactions while current accounts have large transactions.
2. Handling: Savings accounts involve personal handling of assets, while current accounts are aimed to make the account holder free of personal handling of
liquid funds. The current account facility helps the business to run without hurdles due to non availability of funds and short term deficits.
3. Interest Income: Usually the current accounts don’t earn interests. The saving accounts earn 3.5% interest at present in India. The interest is compounded
half yearly. (Please note that in case of death of the current account holder his legal heirs are paid interest at the rates applicable to Savings bank deposit
from the date of death till the date of settlement)
4. Overdrafts: As discussed above saving accounts have no overdraft facility, current accounts have. The money can be borrowed for short term and to be paid
back with interest.
5. Minimum Balance: Usually saving accounts need a minimum balance in the banks to keep the account active (however No Frill accounts require either nil or
low minimum balance to be maintained). In current accounts there are no minimum balance requirements.
CASA Deposits:
CASA Deposits refers to Current Account Saving Account Deposits. As an aggregate the CASA deposits are low interest deposits for the Banks compared to other types of the deposits. So banks tend to increase the CASA deposits and for this they offer various services such as salary accounts to companies, and encouraging merchants to open current accounts, and use their cash-management facilities.
The Bank is High CASA ratio (CASA deposits as % of total deposits) are in a more comfortable position than the Banks with low CASA ratios , which are more dependent on term deposits for their funding, and are vulnerable to interest rate shocks in the economy, plus lower spread they earn.
Term Deposits:
Term Deposits are of three kinds:
1. Fixed deposits: A fixed rate of interest is paid at fixed, regular intervals
2. Re-investment deposits: Interest is compounded quarterly and paid on maturity, along with the principal amount of the deposit. In the Flexi Deposits amount in savings deposit accounts beyond a fixed limit is automatically converted into term-deposits.
3. Recurring deposits: Fixed amount is deposited at regular intervals for a fixed term and the repayment of principal and accumulated interest is made at the end of the term. These deposits are usually targeted at persons who are salaried or receive other regular income. A Recurring Deposit can usually be opened for any period from 6 months to 120 months.
NRO, NE(E)RA and FCNA(A) Accounts:
There are several kinds of accounts available for non resident Indians , Persons of Indian Origin and Overseas Citizens of India. They are as follows:
1. Non Resident Ordinary Accounts: (NRO):
Any person resident outside of India can open this account. Normally, when a resident becomes a non resident, his domestic rupee account gets converted into the NRO account. This helps the NRI to get his credits which accrue in India, for example rent or interest from investments.
2. Non-Resident (External) Rupee Account: (NR(E)RA
This account was introduced as NRE scheme in 1970. It’s a Rupee account and the NRI can remit money to India from the funds abroad. This means that depositor is exposed to the Currency rates risk.
3. Foreign Currency Non-Resident Account: (FCNR)
Foreign Currency Non-Resident Account Bank or FCNR (B) was first introduced in 1993. It replaced the existing FCNR (A) scheme. This account is opened by the NRIs in 6 designated currencies as follows:
1. US Dollar (USD)
2. Great Britain Pound (GBP)
3. Euro (EUR)
4. Japanese Yen (JPY)
5. Canadian Dollar (CAD)
6. Australian Dollar (AUD)
Please note that FCNR account is opened ONLY in the form of Term Deposits and NOT in the form of Demand Deposits.
The term is from 1 year to 5 years.
Repatriation of the principal and interest is allowed for repatriation after maturity.
Interest is paid on maturity, in the same currency of the deposit. For deposits of tenure up to one year simple interest is paid and for deposits of tenure beyond one year the interest is compounded at half yearly rests. The maturity proceeds inclusive of interest is fully reptriable.
The banks may decide the interest rates after approval from RBI and within the limits fixed by RBI.
If a person has NRE account and wishes to transfer to FCNR, it is permissible without prior approval of the RBI.
