How Many Types of Bank Accounts

Team Careers360Updated on 24 Mar 2023, 09:31 AM IST

There are several types of bank accounts such as Savings accounts, Current Accounts, Recurring Deposit Accounts, Fixed Deposit accounts, and so on. Let us know more about all these in this article.

Introduction

A bank account is a financial account that the bank manages on behalf of a customer. It stands for the money a customer has entrusted to the commercial bank, and clients can withdraw from that too. The balance of the accounts represents the customer's financial situation with the institution at any time. Within a specified time frame, the financial activities in a savings account are presented to the client on a bank statement.

Types of Bank Accounts

Current Account: A current bank account enables access to several financial services, including paying bills, receiving money, and setting up direct debits and standing orders to make recurring payments. It serves as a crucial economic health indicator.
Savings Account: A savings account is a deposit account with a financial institution that earns interest and pays a small interest to the account holder. The bank may impose a fee if the consumer doesn't keep a specific average monthly balance in the account.
Recurring Deposit Account: A recurring deposit account allows customers with regular earnings to deposit a certain amount each month and receive interest at the rate that Indian banks are willing to pay on recurring deposits.
Fixed Deposit Accounts: Also referred to as FDs, fixed deposit accounts are kept by banks or non-bank financial institutions (NBFCs) and offer investors a higher interest rate than typical savings accounts until the account matures.
NRI accounts: For Indians or persons of Indian ancestry residing abroad, there are various bank accounts. They are known as abroad accounts. They consist of the NRO, non-resident ordinary, and NRE, non-resident external accounts, two categories of savings accounts, and fixed deposits. Banks also provide non-resident fixed deposit accounts in foreign currencies. Let's quickly review the various NRI bank account types:

Non-resident ordinary (NRO) savings accounts: NRI deposits are typically made in foreign currencies, which are then converted into Indian rupees at the current exchange rate. Money earned in India or abroad can be parked in NRI bank accounts. Payments such as rent, maturities, pensions, and others can be remitted overseas through NRO accounts. Taxes are owed on the revenue derived from these deposit accounts.
Non-resident external (NRE) savings accounts. Similar to NRO accounts, NRE deposit accounts are held in INR and include funds. Any funds put into these accounts are exchanged for Indian rupees (INR) at the current exchange rate. However, these accounts are exclusively for holding your foreign earnings. Both capital and interest are transferable amounts of money. However, India does not tax the interest accumulated on these deposit accounts.
An account for foreign currency held by non-residents. FCNR accounts are maintained in foreign currency, contrary to the other two categories of bank accounts, as their name implies. These accounts' principal and interest are transferable, but the interest is not taxed in India.

How Can A Bank Account Be Opened?

Ensure that you are qualified to open an account.
When a person files for a minor account, certain banks may need their parents to sign certain paperwork if they are under 18.
One must have a legitimate identity and be prepared to divulge basic information about themselves. The bare minimum of money is required to open an account.
The cost to open an account varies depending on the bank, and the kind of account one chooses.
Select the bank that will benefit the customer the most. Not every bank is the same.
To find out what one would receive if they opened a basic account, they should get in touch with the banks in their neighbourhood.
Choose your account type. When opening an account for the first time, a standard current or savings account is frequently chosen. People can choose the account they want to open depending on their needs. Ask to open an account when you go to the chosen bank.
Opening an account in person is typically advisable when opening one for the first time. Before closing an account that you are unsure of, make essential inquiries. Provide the information required to create the account.
One must present a legitimate, government-issued ID with their photo to demonstrate that they are the person they claim to be.
A phone bill, driver's licence, or any other official document with a person's name and address must be presented as evidence of address.
Keep the account paperwork you received safely. The four-digit PIN code is needed to make purchases using a debit card. that of the bank account.

Why Do You Need A Bank Account?

The advantages of having a banking account are numerous. One of the most common is using a debit card, which is useful if you don't want to carry cash while making purchases. If you have an account, you can also write cheques. This may not seem important, but you'd be shocked at how frequently you'll be requested to use or present a cheque, such as when paying rent. Although some people use credit cards to pay for daily needs, you risk being charged penalties and interest if you don't pay off your balance or make payments on time.
Additionally, most workplaces offer the opportunity to deposit money straight into your account if you have a job (known as direct deposit). Direct deposit is also used by several government assistance programs to distribute benefits. Instead of waiting for a cheque to be mailed, deposited, and cleared, direct deposit allows you to receive your money the same day it is disbursed. This is beneficial when trying to pay bills and budget for continued spending.
Additionally, having an account enables you to use payment applications and pay bills online, which is invaluable for handling monthly expenses like phone and utility bills.
Bank accounts keep track of your spending, which can help you stick to a budget, prevent identity theft, or uncover fraudulent transactions. They are occasionally necessary when applying for a loan for major purchases like a home. Is there a compelling argument against having a bank account? "No," is the response.
Even though some bank clients could occasionally run into problems with fees, account management, or other concerns, the advantages of having a current or savings account outweigh the dangers. By protecting your balance, granting easy access to it, and connecting you with other financial services, having a bank or credit union account can help you position yourself for financial success.

Banking Services

In the present era, banks provide a wide range of services. This is done to draw in a growing number of clients. Nevertheless, the banks also provide some fundamental services. Therefore, all banks provide these fundamental services. In this section, we'll explain a few banking services that apply to all Indian banks that you should be aware of.

Advance loan payments

The money they make is what fuels Banks. They are involved in the profit-making industry. Therefore, they lend money to both public and private entities to make a profit. As a result, they are compensated with interest, enabling them to profit. Banks are required to carry a minimum amount of cash. Banks then offer short-, medium-, and long-term loans to those in need after reducing this cash reserve.

Discounting on exchange bills

This is one of the most used banking services for money lending. Using this technique, the bank will provide the person holding the bill with a discounted amount in exchange for the bill. The debtor accepts the payment from the creditor and commits to paying the full amount when the debt is due. After making the marginal deductions, the bank pays the bill's holder the value. Following that, the person who accepted the bill pays the bank when the bill matures.

Payments via cheque: The cheque pads are available to those with bank accounts. As a result, banks pay for the cheques and carry out the formal processes after formal verification. As a result, when an account holder has to make a payment, he or she must obtain a cheque from the bank.

Getting credit instruments and paying them: Many different instruments are employed as credit instruments in current times. This applies to cheques, bills of exchange, promissory notes, etc. The banks deal with these instruments. The banks collect and pay the numerous categories of credit instruments. These financial instruments serve as the clients' representatives.
Consultancy: Modern banks grow their companies and provide their clients with consulting services. To do this, they appoint leaders and professionals in the legal, financial, and market sectors who can counsel clients on matters such as business, income, trade, investment, etc.
Bank guarantees: Customers are given a guarantee by banks in contemporary banking. This typically occurs when clients must deposit a sizable sum of money in courts or government buildings for various reasons. For that person, the bank itself serves as a guarantee.
Credit cards: A service that allows cardholders to use their credit cards to buy products and services. While the cardholder is obligated to pay back the money over time with a specific percentage of interest, it immediately pays for the services and goods.
Cash Cards or Debit Cards: Debit cards allow users to withdraw money from their accounts electronically. All debit cards require a personal identification number to validate the transaction and keep it secure. Online banking, home banking, ATM services, and many more are just a few of the additional services offered by banks.

Notes

Several Banks don't require you to keep a minimum balance in your bank account, although it's true that some do. Ask a salesperson about your alternatives and clearly understand any fees before you open an account. Nevertheless, not having a bank account can potentially be expensive. For instance, if you don't have an account, you'll have to remember to pay each bill manually and run the risk of incurring late fees. If you're like most people, your life gets very hectic, so it's not unusual to forget to make one (or two) payments or to submit them late. Unfortunately, there are extra penalties and fines for paying late. As long as you keep track of your account balance, what is being withdrawn, and when, the option to set up automatic withdrawals is a wise way to manage your finances. Some banking accounts may offer overdraft protection, allowing the bank to pay the difference if the balance falls below zero due to a fee withdrawal.
Account Holder refers to the individual listed or designated by the financial institution that manages the account as the account holder. For this agreement, a person other than a financial institution is not regarded as holding the financial account; rather, the financial account is regarded as being held by the other person, who may be acting as an agent, custodian, nominee, signatory, investment advisor, or intermediary.
You must enter a name on a new account when you open one. A name is necessary for many different accounts, with bank accounts being the most prevalent. Other online service accounts want account names as well. Your name or company name could be used as the account name. There may be more than one account name on a joint account. The most frequent instance of this is when partners open an account jointly. Your account name is crucial to keep in mind because it will be the sole way for anyone to access your account. Your name and other details are already entered if this is a personal account.
Financial institutions use routing numbers, which are nine-digit codes, to identify other financial institutions. It is also referred to as an ABA (American Bankers Association) routing number and an RTN (routing transit number). It enables institutions to find your specific account when used with your account number.
The second crucial number you require is a sort code, sometimes called a "branch sort code." It is a six-digit number that indicates which bank branch handles your account. Normally, the digits are paired up. For instance, the UK's N26 accounts all have the same sort code, 04-00-26.
Typically, the first two numbers will identify the bank (like Lloyds or Barclays), and the final four digits will identify the particular branch. Only in the UK and Ireland are sort codes employed. There are various systems in other nations, like BIC.