Bank accounts help you keep your money safe. At the same time, they also help you compound your investment or savings by allowing you to earn interest on your deposits.
Banks operating in India fall under four categories: private banks, public sector banks or nationalized banks, foreign banks and cooperative banks. All four of these categories of banks allow citizens to open a bank account in India.
To understand how to select a bank account that suits your requirements, you need to know the kinds of bank accounts that all four types of banks offer.
There are six kinds of bank accounts from which you can choose:
Savings Account
These are deposit accounts meant to help consumers save their money. A savings account can be opened by any individual in India who holds an Aadhaar caRD and a PAN caRD（Permanent Account Number caRD）, both of which are mandatory to open a bank account in India.
Key Features of a Savings Account
Limit. There is no limit to the amount of money that can be saved in a savings account. The number of transactions may be capped in some cases, depending on your bank.
Balance. A consumer is expected to maintain a mandatory minimum balance in most cases to maintain a savings account.
Exception to minimum balance requirements is for select accounts, such as savings accounts that have been opened under the Indian federal government’s financial inclusion plan called the Pradhan Mantri Jan Dhan Yojana (PMJDY).
Under PMJDY, one savings account with zero balance is opened per person. These accounts fall under the Basic Savings Bank Deposit Accounts, which limit the number and value of deposits that can be made, and withdrawals are capped at four per month, including ATM withdrawals.
Interest. A consumer earns interest on the deposits made in a savings account. This interest rate varies from one bank to another. For example, interest rate for savings bank deposit is 2.70% for account balance of up to INR 1 lakh at India’s largest public sector bank, State Bank of India. While, interest rate for savings bank deposit is 3% for account balance below INR 50 lakh at India’s largest private sector bank, HDFC Bank.
Benefit. Savings accounts serve as the easiest way to earn interest on idle money lying in banks.
Current Account
Current accounts are mostly business accounts where money is frequently transferred between financial accounts. These accounts are best suited for transactions by corporations and business owners for daily business activities.
Key Features of a Current Account
Limit. There is no limit to how much money can be put in a current account. Current accounts also do not have a transaction limit.
Balance. A current account has a higher minimum balance requirement than savings accounts.
Interest. Consumers do not earn any interest on current accounts.
Benefit. These accounts allow an oveRDraft facility, which permits consumers to withdraw more money from the account that there is actually in the account.
Salary Account
These accounts are opened by banks upon the request of big corporations and businesses that pay their employees through banks. Each employee is eligible to maintain a salary account in which the company they are employed with credits a monthly salary.
Key Features of a Salary Account
Limit. There is no limit to how much money can be put in a salary account. Each employee receives salaries based on disbursal from their employees. Independent transactions can be made by employees to transact between this kind of bank account with another.
Balance. A salary account is a zero balance account and employees can withdraw all the money credited in the account at any point.
Interest. Employees do not earn any interest on salary accounts.
Benefit. These accounts can be converted into savings accounts at any point in time. Upon inactivity for more than three months, banks hold the rights to convert these accounts into savings accounts, the regulation for which is different.
NRI Account
These accounts are opened by non-resident Indians who wish to maintain a financial bank account in India. There are three kinds of NRI accounts that can be opened:
Non-Residential ORDinary Account (NRO)
These accounts hold deposits in Indian rupee denomination. The money deposited is from proceeds earned in India.
Key Features of an NRO
Limit. There is no limit to how much money can be put in an NRO account.
Balance. Any amount of balance can be maintained.
Interest. The principal and the interest earned on that principal fall under the taxable category.
Benefit. 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)
These accounts hold deposits in Indian rupee denomination. The money deposited, however, is not from proceeds earned in India; in other woRDs, the money deposited is earnings or savings from the country where the non-resident Indian lives.
Key Features of an NRE
Limit: There is no limit to how much money can be put in an NRE account.
Balance: Any amount of balance can be maintained.
Interest: The principal and the interest earned on that principal do not fall under the taxable category.
Benefit: 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)
These accounts hold deposits in the currency approved by the central bank of India, the Reserve Bank of India. Any NRI or a person of Indian origin can hold deposits in an approved currency in which they earn their income. If the income is earned in a currency other than the approved list of currencies, then an approved currency is chosen for the conversion of the earnings or the proceeds to be deposited. FCNR accounts are often called FCNR (B) accounts where the (B) stands for banks.
Key Features of an FCNR
Limit. There is no limit to how much money can be put in an FCNR account.
Balance. Any amount of balance can be maintained.
Interest. The principal and the interest earned on that principal do not fall under the taxable category.
Benefit. These accounts bear the impact of a prospective change in the rate of conversion. An NRI can open only a fixed deposit account with a minimum maturity of one year via the FCNR account.
Recurring Deposit (RD) Accounts
These accounts are opened as deposit accounts by consumers who are interested in earning interest on their money. Commonly known as RDs, these accounts are the easiest ways to earn an income higher than that offered by savings accounts.
Key Features of a Recurring Deposit
Limit. The minimum limit to open an RD differs from one bank to another. Consumers can opt for a minimum limit as low as INR 1,000 per month and open an RD account with any bank of their choice.
Balance. RDs are deposit accounts that allow consumers to collect a monthly amount set at the beginning of the tenure of the account.
Interest. A fixed amount is deducted every month and collected in the RD account, where it earns interest month-on-month. This interest is often higher than savings accounts.
Benefit. The flexible tenure of the RD makes it a consumer-friendly financial decision. Consumers can opt for anywhere from six months to up to 10 years to deposit their money in an RD and earn interest on the deposited amount. RD accounts can be discontinued before the end of the tenure without losing the interest earned.
Fixed Deposit (FD) Accounts
These accounts are opened to earn interest on deposits for a fixed period of time until maturity. Fixed deposits are among the safest financial instruments to save and earn interest on idle money.
Key Features of a Fixed Deposit
Limit. There is no limit to how much money can be put in a fixed deposit account. The higher the money allocation, the more interest is paid at the end of the account’s tenure.
Balance. An FD account holds a lump sum amount as investment.
Interest. The bank pays an interest on this deposit. This interest is paid once the tenure of the FD is complete. Upon breaking the FD in the middle of its tenure, consumers risk losing out on the interest and often receive only the principal amount.
Benefit. FDs are risk-free investments with high returns. Most banks in India offer an FD interest rate higher than savings accounts’ interest rates and RDs’ interest rates, owing to the fixed tenure benefit a bank enjoys in the case of FDs. Banks can hold big sums for a fixed period and consumers can make higher volatility-free returns, turning the financial instrument into a win-win for banks and consumers.
Banking in India is tailor-made by the public sector, as well as private banks, to suit different kinds of requirements for different age groups and genders to equip all citizens to become financially enabled.
As the country is taking small yet bold steps towaRD financial inclusion, citizens’ awareness and knowledge will go a long way in further empowering the collective efforts of the nation in growing together.