Fundamental of Banking-I

Unit-3
Types of Bank Accounts

 Types Of Bank Accounts:-

Traditionally banks in India have four types of deposit accounts,

namely Current Accounts, Saving Banking Accounts, Recurring
Deposits and, Fixed Deposits. However, in recent years, due to
ever increasing competition, some banks have introduced new
products, which combine the features of above two or more
types of deposit accounts. These are known by different names
in different banks,

e.g :- 2-in-1 deposits, Smart Deposits, Power Saving Deposits,

Automatic Sweep Deposits etc. However, these have not been
very popular among the public.

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1. Saving Bank Account:-

 Meaning of Saving Bank :-

 Commercial banks (like ICICI, HDFC, etc.), co-operative banks

(like Saraswat, Cosmos, etc.), public sector banks (like State bank
of India, Bank of India, etc.) and postal departments accept
deposits by way of opening saving bank account with them.

 The 'saving account' is generally opened in bank by salaried

persons or by the persons who have a fixed regular income. This
facility is also given to students, senior citizens, pensioners, and
so on.

 Saving accounts are opened to encourage the people to save

money and collect their savings.

 In India, saving account can be opened by depositing र100

toर5000. The saving account holder is allowed to withdraw

money from the account as and when required. The interest

which is given on saving accounts is sometime attractive, but
often nominal.

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 At present, the rate of interest ranges between 4% to 6% per

annum in India. The interest rates vary as per the amount of
money deposited (lying) in the saving bank account, scheme
opted, and its maturity range. It is also subject to current trend of
banking policies in a country.

 Features of Saving Account :-

The main features of saving account in bank are as follows:

 The main objective of saving account is to promote savings.

 There is no restriction on the number and amount of deposits.
However, in India, mandatory PAN (Permanent Account Number)
details are required to be furnished for doing cash transactions

exceeding र50,000.

 Withdrawals are allowed subject to certain restrictions.

 The money can be withdrawn either by cheque or withdrawal slip
of the respective bank.
 The rate of interest payable is very nominal on saving accounts. At
present it is between 4% to 6% p.a in India.
 Saving account is of continuing nature. There is no maximum
period of holding.
 A minimum amount has to be kept on saving account to keep it
functioning.
 No loan facility is provided against saving account.
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 Electronic clearing System (ECS) or E-Banking are available to

pay electricity bill, telephone bill and other routine household
expenses.
 Generally, equated monthly installments (EMI) for housing loan,
personal loan, car loan, etc., are paid (routed) through saving bank
account.

 Advantages of Saving Account :-

The advantages of saving account are as follows:

 Saving account encourages savings habit among salary earners and

others who have fixed income.
 It enables the depositor to earn income by way of saving bank
interest.
 Saving account helps the depositor to make payment by way of
issuing cheques.
 It shows income of a salaried and other person earned during the
year.
 Saving account passbook acts as an identity and residential proof
of the account holder.
 It provides a facility such as Electronic fund transfer (EFT) to
other people's accounts.
 It helps to do online shopping via facility like internet banking.

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 It aids to keep records of all online transactions carried on by the

account holder.
 It provides immediate funds as and when required through ATM.
 The bank offers number of services to the saving account holders.

2. Fixed Deposit Account – Bank :-

 Meaning of Fixed Deposit Account :-
 The account which is opened for a particular fixed period (time) by
depositing particular amount (money) is known as Fixed (Term)
Deposit Account.
 The term 'fixed deposit' means that the deposit is fixed and is
repayable only after a specific period is over
 Under fixed deposit account, money is deposited for a fixed period
say six months, one year, five years or even ten years. The money
deposited in this account can not be withdrawn before the expiry of
period.
 The rate of interest paid for fixed deposit vary (changes) according
to amount, period and from bank to bank.

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 Features of Fixed Deposit Account :-

The main features of fixed deposit account are as follows:-

 The main purpose of fixed deposit account is to enable the

individuals to earn a higher rate of interest on their surplus funds
(extra money).
 The amount can be deposited only once. For further such deposits,
separate accounts need to be opened.
 The period of fixed deposits range between 15 days to 10 years.
 A high interest rate is paid on fixed deposits. The rate of interest
may vary as per amount, period and from bank to bank.
 Withdrawals are not allowed. However, in case of emergency,
banks allow to close the fixed account prior to maturity date. In
such cases, the bank deducts 1% (deduction percentage many vary)
from the interest payable as on that date.
 The depositor is given a fixed deposit receipt, which depositor has
to produce at the time of maturity. The deposit can be renewed for
a further period.

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 Advantages of Fixed Deposit Account :-

The advantages of fixed deposit account are as follows:-

 Fixed deposit encourages savings habit for a longer period of

time..
 Fixed deposit account enables the depositor to earn a high interest
rate.
 The depositor can get loan facility from the bank.
 On maturity the amount can be used to make purchases of assets.
 The bank can get the funds for a longer period of time.
 The bank can lend such funds for short term loans to businessmen.
 Fixed deposits indirectly boost economic development of the
country.
 The bank can also invest such funds in profitable areas.

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3. Current Bank Account :-

 Meaning of Current Account :-
 Current bank account is opened by businessmen who have a higher
number of regular transactions with the bank. It includes deposits,
withdrawals, and contra transactions. It is also known as Demand
Deposit Account.
 Current account can be opened in co-operative bank and
commercial bank. In current account, amount can be deposited and
withdrawn at any time without giving any notice. It is also suitable
for making payments to creditors by using cheques. Cheques
received from customers can be deposited in this account for
collection.
 In India, current account can be opened by depositing Rs.5000 to
Rs. 25,000. The customers are allowed to withdraw the amount
with cheques, and they usually do not get any interest. Generally,
current account holders do not get any interest on their balance
lying in current account with the bank.
 Current account holder get one important advantage of overdraft
facility.

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 Features of Current Bank Account :-

The main features of current account are as follows:-

 Current bank accounts are operated to run a business.

 It is a non-interest bearing bank account.
 It needs a higher minimum balance to be maintained as compared
to the savings account.
 Penalty is charged if minimum balance is not maintained in the
current account.
 It charges interest on the short-term funds borrowed from the bank.
 It is of a continuing nature as there is no fixed period to hold a
current account.
 It does not promote saving habits with its account holders.
 Banker requires KYC (Know your Customers) norms to be
completed before opening a current account.
 The main objective of current bank account is to enable the
businessmen to conduct their business transactions smoothly.
 There is no restriction on the number and amount of deposits.
 There is also no restriction on the number and amount of
withdrawals made, as long as the current account holder has funds
in his bank account.
 Generally, bank does not pay any interest on current account.
Nowadays, some banks do pay interest on current accounts.

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 Advantage of Current Bank Account :-

The advantages of current account are as follows:-

 Current account is mainly opened for businessmen such as

proprietors, partnership firms, public and private companies, trust,
association of persons, etc. that has a large number of daily
banking transactions, i.e. receipts and/or payments.
 It enables businessmen to carry out their business transactions
properly and promptly.
 The businessmen can withdraw from their current accounts without
any limit, subject to banking cash transaction tax, if any levied by
the government.
 Home branch is that location where one opens his bank account.
There are no restrictions on deposits made in the current account
opened in a home branch of a bank. However, the current account
holder can deposit the cash from any other branch of a bank other
than the home branch by paying a nominal charge as applicable.
 It helps businessmen to make a direct payment to their creditors by
issuing cheques, demand-drafts or pay-orders, etc.
 It enables a bank to collect money on behalf of its customers and
credits the same in their customers' current accounts.

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 It enables the current account holder to obtain overdraft (short-

term borrowing) facility.
 The creditors of the account holder can get credit-worthiness
information of the account holder through inter-bank connection.
 It facilitates the industrial progress of the country. Without its help,
businessmen would face difficulties in running their businesses.
 It has the facilities of Internet-banking and mobile-banking to carry
out important business transactions with ease and quickly.
 It also provides various other advantages (benefits) such as:
 Deposit and withdrawal of money (cash) at any location.
 Multi-location funds transfer,
 Electronic funds transfer,
 Periodical (monthly, quarterly or yearly) e-mail or download of
bank statements in various formats like '.XLS', '.TXT', '.PDF', etc.
 Support from customer care executives.

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4. Recurring Deposit Account :-

 Meaning of Recurring Account :-

 Recurring deposit account is generally opened for a purpose to be

served at a future date. Generally opened to finance pre-planned
future purposes like, wedding expenses of daughter, purchase of
costly items like land, luxury car, refrigerator or air conditioner,
etc.
 Recurring deposit account is opened by those who want to save
regularly for a certain period of time and earn a higher interest
rate.
 In recurring deposit account certain fixed amount is accepted
every month for a specified period and the total amount is repaid
with interest at the end of the particular fixed period.

 Features of Recurring Deposit Account :-

 The main features of recurring deposit account are as
follows:-
 The main objective of recurring deposit account is to develop
regular savings habit among the public.
 In India, minimum amount that can be deposited is Rs.10 at
regular intervals.

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 The period of deposit is minimum six months and maximum

ten years.
 The rate of interest is higher.
 No withdrawals are allowed. However, the bank may allow to
close the account before the maturity period.
 The bank provides the loan facility. The loan can be given
upto 75% of the amount standing to the credit of the account
holder.

 Advantage of Recurring Deposit Account :-

The advantages of recurring deposit account are as follows:-

 Recurring deposit encourages regular savings habit among the

people.
 Recurring deposit account holder can get a loan facility.
 The bank can utilise such funds for lending to businessmen.
 The bank may also invest such funds in profitable areas.

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 Cheque :-
 Definition of a Cheque :-
"Cheque is an instrument in writing containing an unconditional order,
addressed to a banker, sign by the person who has deposited money
with the banker, requiring him to pay on demand a certain sum of
money only to or to the order of certain person or to the bearer of
instrument."

 Types of Cheques :-
1. Bearer Cheque :-
When the words "or bearer" appearing on the face of the cheque are not
cancelled, the cheque is called a bearer cheque. The bearer cheque is
payable to the person specified therein or to any other else who
presents it to the bank for payment. However, such cheques are risky,
this is because if such cheques are lost, the finder of the cheque can
collect payment from the bank.

2. Order Cheque :-
When the word "bearer" appearing on the face of a cheque is cancelled
and when in its place the word "or order" is written on the face of the
cheque, the cheque is called an order cheque. Such a cheque is payable
to the person specified therein as the payee, or to any one else to whom
it is endorsed (transferred).

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3. Uncrossed / Open Cheque :-

When a cheque is not crossed, it is known as an "Open Cheque" or an
"Uncrossed Cheque". The payment of such a cheque can be obtained at
the counter of the bank. An open cheque may be a bearer cheque or an
order one.

4. Crossed Cheque :-
Crossing of cheque means drawing two parallel lines on the face of the
cheque with or without additional words like "& CO." or "Account
Payee" or "Not Negotiable". A crossed cheque cannot be encashed at
the cash counter of a bank but it can only be credited to the payee's
account.

5. Anti-Dated Cheque :-
If a cheque bears a date earlier than the date on which it is presented to
the bank, it is called as "anti-dated cheque". Such a cheque is valid
upto three months from the date of the cheque.

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6. Post-Dated Cheque :-
If a cheque bears a date which is yet to come (future date) then it is
known as post-dated cheque. A post dated cheque cannot be honoured
earlier than the date on the cheque.

7. Stale Cheque :-
If a cheque is presented for payment after three months from the date
of the cheque it is called stale cheque. A stale cheque is not honoured
by the bank

 Characteristics of Checks :-
1. Cheque is an instrument in writing
A cheque must be in writing. It can be written in ink pen, ball point
pen, typed or even printed. Oral orders are not considered as cheques.

2. Cheque contains an unconditional order

Every cheque contains an unconditional order issued by the customer
to his bank. It does not contains a request for payment. A cheque
containing conditional orders is dishonoured by the bank.

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3. Cheque is drawn by a customer on his bank

A cheque is always drawn on a specific bank mentioned therein.
Cheque drawn by stranger are of no meaning. Cheque book facility is
made available only to account holder who are supposed to maintain
certain minimum balance in the account.

4. Cheque must be signed by customer

A cheque must be signed by customer (Account holder) . Unsigned
cheques or signed by persons other than customers are not regarded as
cheque.

5. Cheque must be payable on demand

A cheque when presented for payment must be paid on demand. If
cheque is made payable after the expiry of certain period of time then it
will not be a cheque.

6. Cheque must mention exact amount to be paid

Cheque must be for money only. The amount to be paid by the banker
must be certain. It must be written in words and figures.

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7. Payee must be certain to whom payment is made

The payee of the cheque should be certain whom the payment of a
cheque is to be made i.e. either real person or artificial person like joint
stock company. The name of the payee must be written on the cheque
or it can be made payable to bearer.

8. Cheque must be duly dated by customer of bank

A cheque must be duly dated by the customer of bank. The cheque must
indicate clearly the date, month and the year. A cheque is valid for a
period of three months from the date of issue.

9. Cheque has 3 parties : Drawer, Drawee & Payee

Drawer : A drawer is a person, who draws a cheque.
Drawee : A drawee is a bank on whom a cheque is drawn.
Payee : A payee is a person in whose favour a cheque is drawn.

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 Crossing of Cheque - Different Types of Check Crossing

Meaning of Cheque :-

A cheque is a negotiable instrument. During the process of circulation, a

cheque may be lost, stolen or the signature of payee may be done by
some other person for endorsing it. Under these circumstances the
cheque may go into wrong hands.
Crossing is a popular device for protecting the drawer and payee of a
cheque. Both bearer and order cheques can be crossed. Crossing
prevents fraud and wrong payments. Crossing of a cheque means
"Drawing Two Parallel Lines" across the face of the cheque. Thus,
crossing is necessary in order to have safety. Crossed cheques must de
presented through the bank only because they are not paid at the counter.

 Different Types of Crossing :-

1. General Crossing :-
 Generally, cheques are crossed when
1. There are two transverse parallel lines, marked across its face or
2. The cheque bears an abbreviation "& Co. "between the two
parallel lines or
3. The cheque bears the words "Not Negotiable" between the two
parallel lines or

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4. The cheque bears the words "A/c. Payee" between the two
parallel lines.
5. A crossed cheque can be made bearer cheque by cancelling the
crossing and writing that the crossing is cancelled and affixing
the full signature of drawer.

2. Special or Restrictive Crossing :-

When a particular bank's name is written in between the two parallel
lines the cheque is said to be specially crossed.
In addition to the word bank, the words "A/c. Payee Only", "Not
Negotiable" may also be written. The payment of such cheque is not
made unless the bank named in crossing is presenting the cheque. The
effect of special crossing is that the bank makes payment only to the
banker whose name is written in the crossing. Specially crossed cheques
are more safe than a generally crossed cheques.

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