Having a bank account can provide you with a secure place to store your money and also help it grow through earning interest. In India, there are four types of banks - private, public sector, foreign, and cooperative - and all of them allow people to open bank accounts.
To find the right bank account for your needs, it's important to know the different types of accounts available at each of these banks. In total, there are six different types of accounts to choose from.
1. Savings Account
A Savings Account is a type of deposit account that is designed to facilitate saving money for consumers. In India, any individual who holds both an Aadhaar Card and a PAN Card can open a savings account, as these documents are mandatory for opening a bank account.
Some key features of a savings account include the absence of a limit on the amount of money that can be saved, although the number of transactions may be limited by some banks. Additionally, most banks require customers to maintain a minimum balance in their savings account, although there are exceptions, such as accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme.
Under the PMJDY scheme, a basic savings account is opened for each individual with no minimum balance requirement, although there are limits on the number and value of deposits that can be made, and withdrawals are capped at four per month, including ATM withdrawals.
Savings accounts also offer interest on deposits, which varies depending on the bank. For instance, India's largest public sector bank, State Bank of India, offers an interest rate of 2.70% on savings account deposits of up to INR 1 lakh, while India's largest private sector bank, HDFC Bank, offers an interest rate of 3% on savings account deposits below INR 50 lakh.
2. Current Account
A current account is primarily used for business transactions that involve frequent transfers of money between financial accounts. It is ideal for corporations and business owners to manage their daily activities.
The main features of a current account are:
- No limit on the amount of money that can be deposited or transferred.
- No transaction limit.
- A higher minimum balance requirement than savings accounts.
- No interest is earned on the account.
- The account provides an overdraft facility that allows customers to withdraw more money than the actual balance in the account.
3. Salary Account
A Salary Account is an account provided by banks to large corporations and businesses for paying their employees through the bank. Each employee is entitled to maintain a Salary Account, where their employer credits their monthly salary.
The key features of a Salary Account include no limit to the amount of money that can be deposited, and independent transactions can be made by employees to transact between this account and another. The account balance is zero, and employees can withdraw all the money credited in the account at any point without any interest being earned.
These accounts can be converted into savings accounts at any point in time, and if inactive for more than three months, banks have the right to convert them into savings accounts, which have different regulations.
4. NRI Account
NRI Accounts are designed for non-resident Indians who want to maintain a bank account in India. There are three types of NRI accounts available: Non-Residential Ordinary Account (NRO), Non-Residential External Account (NRE), and Foreign Currency Non-Residential Account (FCNR).
Non-Residential Ordinary Account (NRO)
The NRO account holds deposits in Indian rupee denomination and accepts money earned in India. It has no limit to how much money can be deposited, and any balance can be maintained. However, both the principal and the interest earned on the account are taxable. An NRI can open a current account, savings account, or fixed deposit account through the NRO account, and it is unaffected by the rate of conversion.
- Deposits are in Indian rupee denomination and come from proceeds earned in India.
- No limit to how much money can be put in an NRO account.
- Any amount of balance can be maintained.
- The principal and the interest earned on that principal are taxable.
- These accounts are unaffected by the rate of conversion.
- An NRI can open a current account, a savings account, or a fixed deposit account via the NRO account.
Non-Residential External Account (NRE)
The NRE account holds deposits in Indian rupee denomination and accepts money earned outside India. There is no limit to how much money can be deposited, and any balance can be maintained. The principal and interest earned on the account are not taxable, and it bears the impact of a prospective change in the rate of conversion. An NRI can open a current account, savings account, or fixed deposit account through the NRE account.
- Deposits are in Indian rupee denomination but not from proceeds earned in India.
- No limit to how much money can be put in an NRE account.
- Any amount of balance can be maintained.
- The principal and the interest earned on that principal do not fall under the taxable category.
- These accounts bear the impact of a prospective change in the rate of conversion.
- An NRI can open a current account, a savings account, or a fixed deposit account via the NRE account.
Foreign Currency Non-Residential Account (FCNR)
The FCNR account holds deposits in an approved foreign currency, as determined by the Reserve Bank of India. Any NRI or person of Indian origin can hold deposits in an approved currency in which they earn their income. The account has no limit to how much money can be deposited, and any balance can be maintained. The principal and interest earned on the account are not taxable, and it also bears the impact of a prospective change in the rate of conversion. However, only fixed deposit accounts with a minimum maturity of one year can be opened through the FCNR account.
- Deposits are in the currency approved by the Reserve Bank of India.
- No limit to how much money can be put in an FCNR account.
- Any amount of balance can be maintained.
- The principal and the interest earned on that principal do not fall under the taxable category.
- These accounts bear the impact of a prospective change in the rate of conversion.
- An NRI can only open a fixed deposit account with a minimum maturity of one year via the FCNR account.
Overall, NRI accounts offer various benefits to non-resident Indians, including the ability to manage their finances in India and the flexibility to choose the type of account that suits their needs.
5. Recurring Deposit
Recurring Deposit (RD) accounts are a type of deposit account opened by individuals interested in earning interest on their savings. These accounts, also known as RDs, provide a simple and effective way to earn a higher income than what is offered by savings accounts.
The key features of an RD account include a minimum limit for opening the account, which varies from bank to bank. Customers can opt for a minimum limit as low as INR 1,000 per month and open an RD account with their preferred bank.
RDs are deposit accounts that allow customers to deposit a fixed amount every month, as set at the beginning of the account tenure. The deposited amount earns interest on a monthly basis, which is typically higher than what is earned through savings accounts.
One of the main benefits of RDs is the flexibility they offer. Customers can choose to deposit their money in an RD account for a period ranging from six months to up to 10 years and earn interest on their savings. Moreover, customers can discontinue their RD account before the end of the tenure without losing the interest earned.
6. Fixed Deposit (FD) Accounts
FD Accounts, or Fixed Deposit Accounts, are opened to earn interest on a deposited amount for a specific period of time until the maturity date. They are considered to be one of the safest financial instruments for saving and earning interest on idle money.
The key features of a Fixed Deposit include the absence of any limit to the amount that can be deposited, with higher allocations resulting in higher interest payments at the end of the account's tenure. The account holds a lump sum amount as an investment, and the bank pays an interest on this deposit. This interest is paid only once the FD reaches its maturity date, and consumers may lose out on interest if they break the FD before its tenure is complete.
FDs offer risk-free investments with high returns, as most banks in India offer a higher interest rate on FDs compared to savings accounts and RDs, thanks to the fixed tenure benefit the banks enjoy. Banks can hold large sums for a fixed period, while consumers can make higher returns without worrying about market volatility, making FDs a win-win for both parties.
Conclusion
In conclusion, opening a bank account can be a wise decision to secure your money and help it grow. In India, there are different types of bank accounts available for individuals and businesses, including savings accounts, current accounts, salary accounts, and NRI accounts. Each type of account has its own features, benefits, and requirements, so it's important to choose the one that suits your needs and financial goals.
Whether you're looking for a place to save your money, manage your daily transactions, receive your salary, or maintain your finances while living abroad, there's a bank account that can meet your expectations. By understanding the different types of bank accounts, you can make an informed decision and enjoy the convenience, security, and benefits of having a bank account.
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