Bank Account Types in India

Banks in India provides different types of account to their coustomers such as savings account, recurring account, NRE account, NRO account, fixed deposit account, current account and salary account. Find all types of account in details which help you to choose appropriate bank account for deposit money to bank or money withdrawal from bank.

What is Savings Account?

Savings Accounts are the most popular type of bank accounts meant for saving of your amount and getting interest on it. You have the flexibility of deposit your fund to or withdraw your fund from the account based on your requirement. Banks provides cheque facility to savings account holders. It can be opened and operated either in single name or in joint names. Generally, all the salaried employees as well as the pensioners have this type of account. The rate of interest offered on such account is between 4% to 7% per annum. With effect from FY 2012-13, interest earned on savings account upto Rs 10,000 in single financial year is exempted from tax.

Savings Account Benefits

  1. One of the the safest or smartest way to manage your savings.
  2. It provides liquidity of funds.
  3. Savings bank account is the most basic product of all the banks in India.
  4. It is usually a non zero-balance account means the account holder needs to maintain a minimum account balance of a certain amount.
  5. A penalty is levied upon the account holder for not maintaining the minimum balance as required by the bank.
  6. Generally opened by salaried individuals.
  7. It has daily withdrawal limits unlike current account where there is no such limit on withdrawal.
  8. Usually, it has low interest rate, it offers an interest rate which is little higher than the rate of inflation.
  9. It facilitates small savings with flexible amounts and tenures.
  10. It also offers the facility to the account holder to pay bills, make online fund transfer, make quick transactions, etc.
  11. Issuance of ATM/ Debit Card.

What is Current Account?

Current Account are opened to enable the account holders to conduct their daily business transactions smoothly. These deposits are the most liquid deposits and there is no restriction on the number and the amount of transactions in a day. These are not used for investment purpose as mostly the banks do not offer any interest on such accounts instead they deduct some service charges on such accounts. Generally, the current accounts are opened in the names of firm or company.

Current Account Benefits

  1. Current bank accounts are operated to run a business.
  2. It enables the businessmen to conduct their business transactions smoothly, faster and trouble-free.
  3. No restriction on the amount and number of deposits or withdrawal.
  4. Electronic payment facility is available.
  5. Usual payments like wages and expenses can easily be managed.
  6. Usually, bank does not pay any interest on current account but now-a-days, some banks have started paying interest on current accounts.
  7. It offers overdraft facility.
  8. It charges interest on the overdraft / short-term funds borrowed from the bank.

What is Recurring Account?

Recurring Deposit Account is opened by the persons who wish to invest an average amount to bank on a regular basis. These are also popularly known as RD accounts. This account is useful for those persons who do not want to invest a large amount at single instance. Banks usually have fixed installment RD but now-a-days some banks also offer flexible RD where the person can deposit even higher amount of installment than previous installment. Any default in payment within the month attracts a small penalty. These are available for different maturities starting from 6 months to 120 months. The account holders get a passbook showing entries for all the deposits made by them and the interest earned thereon. The account holders can withdraw the amount alongiwth the interest on maturity of RD. Premature withdrawal of accumulated amount is also allowed with little penalty on early withdrawals.

Recurring Account Benefits

  • One of the best way of investment of your savings which is offered by almost all the banks in India.
  • It facilitates small savings with flexible amounts and tenures.
  • It inculcates a regular habit of saving for future needs.
  • It is available from minimum of 6 months to a maximum of 10 years with monthly instalments of 12, 24, 36, 48, 60, 72, 84, 96, 108 and 120 months.
  • It can be opened for monthly instalments of Rs 100 and thereafter, in multiples of Rs 100.
  • Once the RD account becomes active, the customer can not change the amount of the installment or the tenure.
  • Standing instruction for transferring the monthly instalments from the customer's SB / CA account is accepted.
  • Very popular among the salaried class persons.
  • Best for those who can afford to save only a few thousand rupees per month.
  • Almost all the banks do quarterly compounding in case of RD.
  • On maturity date, the RD holder is paid the maturity value i.e. the principal and the interest earned.
  • RD accounts can be prematurely closed and banks generally deduct some penalty as per the clauses of the bank.
  • Partial withdrawals are not allowed.
  • A penalty is levied upon a delayed payment or missing installment.
  • Some banks have a loan facility against the RD on pledging the RD as collateral.
  • Nomination facaility is available.

What is Fixed Account?

Fixed Deposit Account are those accounts in which a fixed sum of money is deposited for a specified time usually for a period from 7 days to 10 years. A higher interest rate is offered on fixed deposits which varies from bank to bank according to the amount deposited and duration of investment. Private sector banks and foreign banks offer higher rate of interest as compared to public sector bank in order to attract more deposits. These are also popularly called as FD accounts. The account holders can withdraw the amount alongiwth the interest on maturity of FD. Premature withdrawal of accumulated amount is also allowed with little penalty on early withdrawals. Some banks also give facility to pay interest on quarterly or monthly basis on FD account.

Fixed Account Benefits

  1. Maximum Investment Amount: No such limit
  2. Interest Rates Variable: from 7% to 9% based on tenure
  3. Interest earned is taxable: Yes
  4. Lock in Period: No
  5. Tenure: 7 Days to 10 Years
  6. Income Tax Rebate u/s 80C: Yes upto Rs 1,50,000/- p.a., but on FD with a lock in period of 5 or more years
  7. Maturity Value: Taxable
  8. Premature Withdrawals: Entire amount, anytime but after charging a certain penalty
  9. Risk: Risky as compared to PPF

What is NRE Savings Account?

Through an NRE Savings Account opened in India, an NRI can freely deposit the funds coming from foreign earnings. Such funds are converted into INR or Indian currency no matter what their currency is.NRI can maintain foreign currency earnings in Indian Rupees in an NRE account. Account holders can repatriate the money any time.

NRE Savings Account Benefits

  1. It can be opened by any person who is residing outside India.
  2. It allows holding and maintaining foreign currency earnings in Indian rupees.
  3. One can freely repatriate funds (principal and interest earned)
  4. If an NRI is earning income originating in India like salary, rent, interest, dividends etc., he is cannot deposit it in NRE account.
  5. An NRE Joint Account can be opened by two NRIs but it cannot be opened by an NRI along with a resident Indian.
  6. NRE account is Tax free in India. Taxes like income tax, wealth tax, gift tax, etc., are not applicable to NRE Accounts. Not only is the income but the interest earned on these accounts also is tax exempted.
  7. There may be 2 types of losses in the NRE accounts exchange rate loss, due to daily fluctuations in the value of the rupee, and conversion loss.
  8. Money can be transferred from an NRE account to an NRO account.

What is NRO Savings Account?

Through an NRO Savings Account opened in India, NRIs can manage their income earned in India from sources like salary, rent, pension, dividends, etc. while they are abroad. NRO account holders can also transfer foreign currency into an NRO account, which will be converted to Indian Rupees or INR. If a resident Indian becomes an NRI, he can convert his existing savings account to an NRO account.

NRO Savings Account Benefits

  1. If an NRI is earning income originating in India like salary, rent, interest, dividends etc. he is allowed to deposit it in NRO account only.
  2. RBI has imposed some restrictions regarding repatriation from NRO Accounts. NRO Savings Account holders may only be allowed to remit up to USD 1 million during one financial year i.e. April to March.
  3. An NRO Joint Account can be opened by two NRIs and it can also be opened by an NRI along with a resident Indian.
  4. NRO Accounts are not exempt from tax as per Indian Income Tax Laws. Taxes like income tax, wealth tax, gift tax, etc., are applicable to NRO Accounts. Also, interest earned on an NRO Account is taxable as well.
  5. NRO Accounts are safe and do not suffer any loss from exchange rate fluctuations.
  6. One cannot transfer money from an NRO account to an NRE account.