Introduction to Bank Accounts
A bank account is a virtual vault to store your money. It is created by the bank on your request. You can safely and securely store a virtual representation of your real wealth in it.
These are the types of account that banks offer:
- Savings Account
- Recurring Deposit Account
- Fixed Deposit Account
- Current account
These are different from one another in terms of usage, such as deposits, withdrawals, interest rates, timing, purpose, etc. Various banks modify the terms and conditions of these different types of accounts according to their norms so that they can meet the needs of different types of customers.
In the wake of the coronavirus pandemic, the government has allowed free-of-charge cash withdrawal from any bank ATM for debit card holders for three months.
The measure was announced by Finance Minister Nirmala Sitharaman at a press conference on Tuesday, 24/03/2020, where she also announced complete waiver of minimum balance charges for savings bank accounts. These measures by the government are meant to soften the financial burden of citizens, as the country has gone into lockdown to check the spread of Covid-19.
Types of Bank Accounts
In today’s world, using hard cash is extremely inconvenient and unsafe for daily finances. It is more secure to deposit our money with banks and track the transactions and balances. Earlier, printed passbooks were used for this, but most banks have made it easier for users to track their accounts through net-banking and SMS.
A savings bank account is the most basic product that all banks have that provides all customers with a virtual vault to store their money securely.
Savings Account Interest Rates in India
A current account or a trading account is primarily meant for business purposes. Traders, entrepreneurs, business firms, etc., receive multiple payments and receipts every day. They need access to their bank accounts regularly. A current account is the ideal mode of transaction for such requirements. It has minimum restrictions on the number of daily transactions.
A current account can be opened by:
- Joint Accounts for two or more individuals
- Hindu Undivided Family
- Partnership firms
- Proprietary concerns
- Associations, trusts, and clubs
- Government departments, boards, corporations
- Private and public limited companies, etc.
Fixed Deposit Accounts
A fixed deposit account or an FD is a type of account where you store your money for a locked period of time and receive higher interest-rates than your savings account. You can create an FD for a few days or for a few years, but you cannot withdraw the money for the agreed time. Your deposit is fixed till the maturity date. If you close the account prematurely and withdraw the money, the bank will impose penalty charges. The rate of interest for fixed deposit accounts may vary from bank to bank. It also depends on the amount deposited, time period and prevailing market rates.
Recurring Deposit Accounts
RDs are deposit accounts meant for people with a regular income to make monthly savings. If you decide to save a particular amount every month, you can create an RD and set up a standing instruction to debit the fixed amount from your savings account and credit it to the RD account. If you fail a monthly payment or delay it, there will be a reduction of the interest payable at maturity.
Savings accounts are the most common types of bank accounts held by individuals across the globe. Here are its features:
- Most savings accounts in India need the account holder to keep a certain amount as the minimum account balance, failing which, the bank can levy maintenance fees.
- With an aim to keep the real value of the deposited money stable throughout the years, savings accounts generally offer a slightly higher interest rate than the rate of inflation.
- Modern savings accounts have a lot of savvy features. You can access links to pay bills quickly or to make quick transactions.
- These accounts generally have daily withdrawal limits, hence they can't be used as current accounts.
- Savings accounts are usually not zero-balance accounts.
- Savings accounts offer an exceptional amount of liquidity of funds.
- Salaried individuals prefer savings accounts. Business people prefer current accounts which generally have no minimum balance requirements, offer less interest but more liquidity of funds.
- A savings account is like a vault that virtually stores your money. It lets you withdraw a certain amount at certain intervals, and also adds a small amount of interest to itself each year.
Types of Savings Accounts
Here are the different types of savings accounts available in most banks:
Regular Savings Account
These are the most common types of savings account, and they follow the basic terms and conditions of the bank. These accounts neither require regular deposits of consistent amounts nor withdrawals. These accounts are basically the virtual equivalent of a safe or a vault of the account holder, where the money just waits to be used.
Salary-based Savings Account
These accounts are created by the banks on the request of companies for the purpose of payment disbursal. These accounts are handled by the employees of the companies. These accounts generally have preferential rates as well as specific terms that the banks specially offer to the employers or companies. The bank withdraws the amounts from the company's account and disburses the specific amounts on the date of salary disbursal to these salary-based savings accounts opened for employees. Most of these salary accounts do not require a minimum balance, but if the salary stops being deposited for three consecutive months, these accounts are converted into regular savings accounts that have a minimum balance requirement.
Savings Accounts for Senior Citizens
These accounts are designed for senior citizens, as they offer benefits as well as specific functionality for people in the senior citizen category. These accounts are similar to regular savings accounts in terms of functionality, but offers higher interest rates and exclusive banking privileges. As an additional benefit to the senior citizens, one can easily link these accounts to all other senior citizen savings schemes (such as retirement accounts or pension funds) in order to consolidate all these funds under a single bank account to be easily managed by seniors.
Savings Accounts for Children and Minors
Minor accounts do not generally have a minimum balance requirement. These accounts function in the same way as regular savings accounts do. These accounts are specially designed for the younger generation, to educate about the modern banking system, facilities available, and the nuances of managing a bank account. These accounts are opened for minors and children and supervised by their parents or legal guardians. This facility has encouraged the younger generation to save money. It has also given them a higher sense of responsibility while dealing with money.
Exclusive Benefits Accounts for Women
These accounts are relatively new concepts started by a few banks. They offer preferential interest rates for particular types of applicants. These accounts have exclusive features to benefit women in particular. Female entrepreneurs can also open this type of account and apply for high-value loans at preferential rates.
Zero-balance Savings Account
These accounts provide the perfect amalgamation of a savings and a current account. Although there are limits on withdrawal amounts, the account holders are not penalized if the balance in the account slips below the prescribed minimum - quite unlike the case in other types of savings accounts. Zero-balance accounts were initially set up for the economically weaker section of customers. However, the banks have started offering these accounts as salary accounts as well.
Post Office Savings Account
These accounts are opened at a post office, and they are quite similar to a regular bank savings account. However, Post Office Savings Accounts are stricter and more secure with the account holder’s funds. Unlike banks that may not have branches in every city, post offices are generally found in the remotest of locations that are difficult to access. Hence, Post Office Savings Accounts are becoming increasingly popular options for saving money of late. Any Indian adult can open these accounts. Guardians can open these accounts on behalf of minors.
Here are some of the notable features and benefits of a Post Office Savings Account:
- It is easy to open and requires a cash deposit of minimum Rs. 50.
- The interest rate offered is equal to what most banks offer.
- Minimum balance is Rs. 500 for accounts with cheque facility and Rs. 50 otherwise
- These accounts can be opened or closed as per the account holder's desire.
- Account holders can withdraw the funds entirely or partially, whenever they need.
- These accounts reduce the risk exposure for account holders by offering an assured return on all investments.
- These are ideal forms of investment for senior citizens as they offer a lower exposure to risk.
- Post Offices can be found in remote rural areas, whereas most banks are restricted to urban areas. Therefore, a Post Office Savings Account provides the rural folks the facility of opening a Savings Account.
- The process of opening these accounts is quite simple and hassle-free as there isn't a lock-in or maturity period for funds involved in these accounts.
- Account holders can nominate a person to these accounts not only during opening the account but later as well.
- A Post Office Savings Account are remarkably flexible as these can be transferred from one branch of Post Office to another, without changing the account number.
- If two or more adults want to open a Post Office savings account, they can do so easily by opening a joint account.
- Account holders can convert their individual account to a joint account and vice-versa whenever they want.
- Post Offices with Core Banking Solution (CBS), provides the facility of electronic transactions, else there are passbooks to record all transactions.
- Individual holders can deposit a maximum of Rs 1 lakh into a Post Office Savings Account, whereas joint account holders can deposit Rs 2 lakhs.
- The Post Office Savings Accounts are tax-free returns. All returns on investments (like the interest earned on account balance, etc.) up to Rs 10,000 are exempted from tax under the regulations of Section 10 (15) of the Income Tax Act.
DoP Internet Banking
The Department of Post offers the facility of internet banking to their customers for conducting banking transactions online.
Here are the various features and functions of the DoP internet Banking:
Profile Customization: Users can customize their profile using internet banking facilities. One can set account references, update their Channel ID, view personal details and change passwords through this feature.
Accounts: The internet banking portal has an Accounts section, where users can check the account summary of various accounts (such as their savings account, Recurring Deposit account, Public Provident Fund Account, Time Deposit Account and National Savings Certificate Account). Additionally, users can also check the details of their loans on RD, loans on PPF and the details of TDS or tax deducted at source.
Transactions: The internet banking portal permits the users to perform many account-related actions. They can make requests for managing payees and billers or for transferring funds or for making withdrawals from their PPF accounts. They can also check their transaction history, deposit money into their PPF or RD account. The users can view any recurring instructions through this facility.
General Services: The general services of DoP internet banking include inquiry requests, emails and mailing service related requests.
Eligibility Criteria for a Savings Bank Account
Applicants should meet certain eligibility criteria in order to create and operate a savings account in any Indian bank. There are a few general requirements that are followed by most banks, but specific banks might have different parameters or require more authentication:
Resident Indians, NRIs, as well as foreign nationals living in India can open a savings account.
Age: One must be an adult (18 years) in order to open a savings account. Parents or guardians can open minor accounts for children.
Restrictions: Banks generally do not impose any such restriction.
There are a few required documents that a potential customer must submit along with the application for opening a new savings account. Here is a list of all the necessary documents:
Age and Identity Proof: Provide authentic documents that are registered, recognized and issued by a competent authority. It must contain your full name and a recent photograph. PAN Card, Voter’s ID, Passport, Driving license, etc. are universally accepted by all banks.
Photographs: Submit at least two recent passport-sized photographs along with the application form.
Proof of address: Provide authentic documents that are registered, recognized and issued by a competent authority. It must contain your full name and your complete residential address. Driving license, Voter’s ID, Passport, Electricity or Phone bill, etc. are preferred.
Senior Citizen Card: Senior citizens interested in availing special benefits must submit an age proof or a senior citizen card.
Proof of income: The bank might ask for proof of income and employment. However, it isn't mandatory and depends upon the type of account you are applying for.
Other documents: Specific types of accounts might call for certain other documents. Sometimes you might also be asked to submit multiple identity proofs and address proofs.
Opening a Savings Account Offline
Most of your banking needs are met online these days, but certain official work might need you to visit the bank. In case you are stuck without an online portal for online creation of a bank account, here are the steps for opening a savings account offline:
Step 1: Find out the interest rates and account types offered by different banks. Then select the bank that suits your requirements.
Step 2: Visit the nearest branch of the bank with a photocopy of your identity proof, address proof, age proof, two photographs, and other necessary documents.
Step 3: Contact the designated clerk and seek help with the process of opening a new account. You will be given an account opening form.
Step 4: Submit the duly filled up form along with the necessary documents.
Step 5: You might have to deposit a nominal amount during the creation of your account.
Step 6: The clerk will take over and process your request. Your account will be opened within 1 to 12 working days. It could happen on the same day too. You will receive an account opening kit from the bank.
Opening a Savings Account Online
The most convenient way of conducting banking operations is online. The procedure for opening a savings bank account online is quite simple.
Step 1: Find out the interest rates and account types offered by different banks. Then select the bank that suits your requirements. Make sure that the chosen bank has an online account opening facility.
Step 2: Visit the website of the bank and log in.
Step 3: Submit the duly filled up form along with the necessary documents like a scanned copy of your identity proof, address proof, age proof, two photographs, and other necessary documents. Some banks might ask for hard-copies of the documents - a bank executive will visit you to collect the same.
Step 4: The bank's back-end team will verify your documents, and you will be given a bank opening kit to begin transactions.
- Do I have to pay income tax on the interest earned on Savings Accounts?
Ans: The interest amount arising from your savings accounts up to Rs. 10,000 is tax-free. This applies to all savings accounts in all banks and even in Indian Post Office savings bank accounts.
- What is the interest rate offered for a general savings account?
Most of the banks offer 4% interest per annum, and the interest amount is computed on a half-yearly basis and credited to your account twice a year. The interest rates may vary.
- What is nomination? Whom can I nominate to my savings account?
All bank accounts follow the concept of nomination. In case of the sad demise of the account holder, the person appointed as the nominee will take care of the assets. You can nominate a family member, a close friend or anyone you trust. The person must be above 18 years of age. Each account can have a single nominee.
- What advantages of enabling internet banking facility?
Internet banking allows you to view all details of your personal savings account from your home. You can not only view monthly account statements but also check your balance, transfer funds, inquire cheque status, update your contact information and even open a deposit account without visiting the branch.
- What is average monthly balance?
The average monthly balance is calculated as the average of the closing credit of each day for the calendar month. If the average monthly balance is not maintained, the customer is charged a penalty fee.
- What is BSBDA?
BSBA or Basic Savings Bank Deposit Account was introduced by RBI. It requires minimal documentation (KYC Documents only) and also has zero minimum balance requirements. All Indian residents over 18 years of age can open this type of an account in a bank of their choice. The customers can avail services like cash withdrawal, deposits and free debit cards.