It is very important to know the different types of bank accounts whether you are preparing for any bank exam like IBPS, SBI, RBI, or any other government exam. Banking questions are generally asked frequently and have good weightage in cracking any exam.
This article will provide a good idea about the types of bank accounts in India and their benefits, which will help you get a better understanding and prepare yourself for the banking interview.
There are broadly 5 different types of bank account:
- Savings Account
- Current Account
- Recurring Deposit Account
- Fixed Deposit Account
- NRI Account
As the name implies, savings accounts can be opened by one individual or jointly by two individuals for the purpose of saving money as the bank pays you the maximum rate of interest on your savings.
Benefits of opening Savings Account:
Purpose: This account is used to earn maximum interest from the bank on your savings.
Ideal For: Salaried person, Students, Pensioners
Minimum Balance: Customers might need to maintain minimum (can be between 1k to 10k) as per the banks requirement but few banks provide zero balance account i.e, you don’t need to maintain any balance.
Interest Rate: Interest rates vary bank to bank generally it’s between 4 to 6%.
Deposit and withdrawals limit: Deposit has no limit but withdrawal has few restrictions.
Other Features: Users can apply for a Checkbook, Passbook, ATM cards(Debit, Credit, Rupee, Visa, Master, etc) if they are interested.
Charges: Only annual maintenance chargers but the features like Checkbook, ATM cards are also chargeable.
Current account is opened when you need unlimited access to your money and allows frequent deposit and withdrawal of money.
Benefits of opening Current Account:
Purpose: This account is used for frequent transition of money.
Ideal For: Business owners, Firms/Associations, Religious Institutions, Educational Institutions, Charitable Institutions, Companies, Public/Private enterprise and other businesses.
Minimum Balance: MInimum balance is higher then the saving accounts but few banks have options of zero minimum balance.
Interest Rate: No interest is paid on this type of account.
Deposit and withdrawals limit: Deposit and withdrawal has no limit or restrictions.
Other Features: Overdraft facility (Allow users to use more money than actually in their account), Internet banking, Free checkbooks.
Charges: Non maintenance charges, Overdraft charges, transaction charges (Based on banks), Checkbooks issue charges, GST (According to government guidelines) and few other charges.
Recurring Deposit Account:
This account is opened when you want to earn more interest on your money. Recurring deposit accounts are generally also known as RD’s. RD’s require periodic payment/installments every month until maturity. RD’s can also be opened both single/joint.
Benefits of opening Recurring Deposit Account:
Purpose: To earn higher interest on the amount of money you’re saving every month.
Ideal For: Individuals, institutions, associations, clubs who want to earn a higher rate of interest than savings accounts.
Minimum Balance: Minimum limit for RD’s vary from bank to bank but the duration needs to be fixed before opening the account. Time duration may vary from 6 to 120 months.
Interest Rate: Interest can vary from bank to bank but it’s around 4% to 6.5%.
Deposit and withdrawals limit: Monthly/Periodically payment needs to be made and you can withdraw money before maturity without losing the interest earned.
Other Features: Checkbooks, Nomination, Premature withdrawal, consumer friendly tenure.
Charges: No charges as such.
Fixed Deposit Account:
As the name suggests, in a fixed deposit account the money is deposited for a fixed period of time until maturity. It offers both short term and long term fixed deposits i.e from 7 days to 10 years.
Benefits of opening Fixed Deposit Account:
Purpose: To earn higher interest on a one time deposit amount.
Ideal For: Individuals, institutions, associations, clubs who want to earn interest on the fixed amount.
Minimum Balance: There is a minimum limit as per the public/private sector you are going for.
Interest Rate: Interest can vary from bank to bank but it’s around 2% to 6% and the variation is based on the duration you keep the money deposited i.e, longer the duration more the interest.
Deposit and withdrawals limit: One time deposit and there is no limit of how much money you want to deposit and also no restriction on withdrawal but if you withdraw money before maturity there is risk of losing the interest earned.
Other Features: Nomination, Premature withdrawal (Risk of losing the interest earned), Flexible tenure.
Charges: No charges as such.
NRI stands for Non-resident Indian and this account is for non-resident Indians who want to have a financial trail in India as it offers many benefits . They may use an NRI account to transfer money earned abroad to India and keep savings in India. NRI’s can choose from the three types of accounts offered in India.
Types of NRI Accounts:
NRE (Non-Resident External Account):
This account allows people working outside India to deposit/transfer money from their forign earning to India very easily. Individuals/entities of Bangladesh/Pakistan require prior approval of RBI as per government guidelines.
Benefits of opening NRI Account:
Purpose: To deposit/transfer money from other countries to India and this account also pays interest.
Ideal For: Anyone who is an NRI (Non-resident Indian).
Minimum Balance: There is a minimum limit users can maintain balance according to their wish.
Interest Rate: Interest depends on the bank. The principal and interest do not fall under the taxable income.
Deposit and withdrawals limit: No limit on the deposit and withdrawal on NRE account.
Other Features: Fixed deposit available from 1 to 5 years, Principal and interest are non-taxable, account bears currency conversion charges.
Charges: Per transaction charges and depend on the bank.
NRO (Non-Resident Ordinary Account):
This account is available for non-resident Indians which allows users to deposit money earned in Indian rupee. You do need to note that this account’s interest is taxable in India according to the Income Tax Act of India.
Benefits of opening NRO(Non-Resident Ordinary Account):
Purpose: To deposit/transfer money earned in India via sources like from properties, other incomes, dividends, etc
Ideal For: Anyone who is an NRI with income sources in India.
Minimum Balance: Need to maintain a minimum balance as per the bank’s guidelines and the location of bank i.e, Metro, Urban, or Rural. Generally, it is between 5000 to 10000 rupees.
Interest Rate: Interest depends on the bank. The principal and interest do fall under the taxable income as per the Income Tax Act of India.
Deposit and withdrawals limit: No limit on the deposit and withdrawal on NRO account.
Other Features: NRO account has an unaffected conversion rate. Savings, Current, Fixed, Recurring deposits are available on this account. You can also avail yourself of checkbooks, debit cards, and credit cards.
Charges: Maintaining AMB (Average Monthly Balance) charges, checkbooks issue charges, annual maintenance charges.
FCNR (Foreign Currency Non-Resident Account):
This account is available for any NRI or individual of Indian origin who may want to manage their international currency which is in the list of approved currency. NRIs can deposit funds in 7 approved currencies – US Dollars, UK Pound, Singapore Dollar, Hong Kong Dollar, Canadian Dollar, Australian Dollar, and Swiss Franc.
Benefits of opening FCNR(Foreign Currency Non-Resident Account) :
Purpose: This type of account can be opened to manage an international currency
Ideal For: NRIs looking to earn higher interest on saving and want to reduce the risk of currency fluctuation.
Minimum Balance: Need to maintain a minimum balance as per the bank’s guidelines Generally, it is around 1000 US dollars.
Interest Rate: Interest is earned month on month and is higher than savings accounts.
Deposit and withdrawals limit: Minimum deposit is based on the currency you are transferring.
Other Features: Internet Banking, I-mobile, Phone Banking, Wire Transfer which can be availed through requesting nearest bank branch.
Charges: Maintaining AMB (Average Monthly Balance) charges, checkbooks issue charges, annual maintenance charges, and foreign currency conversion charges.
Frequently asked questions :
Q1-How many different types of bank accounts exist in India?
Q2-what is the NRI account? And types.
Q3- What Is the major difference between a savings and a current account?
Q4- What are the different ways to operate a bank account?
Q5-Which bank account provides the highest rate of interest?