Types of Deposits
Dr. Sunita Sukhija
Assistant Professor
Govt. National college, Sirsa

Introduction
• A bank account serves a lot of purposes for anyone in
the process of financial planning, the three most
important ones being safety, convenience and savings.
• Traditionally in India, we have four major types of Bank
Deposits, namely Current Account, Savings Accounts,
Recurring Deposits and Fixed Deposits, each with
varying advantages.
• However these days, some banks have also introduced
many new products, which combine the features of
two or more types of bank deposits like 2-in-1
Deposits, Power Saving Deposits, Smart Deposits, etc.

• Money and banking are part of everyday life. Banks offer all sorts of
financial products to help you manage your money on a day-to-day
basis. The bank is such a place where once we deposit money, it remains
safe and also earns interest over some time. This is known as the deposit
and to each deposit, the bank assigns a unique identity which is known as
the account. Each deposit corresponds to a unique account and vice versa.
• Sometimes we use numbers to uniquely identify an account. This is what
we call the account number. It may also be a combination of alphanumeric
letters. Bank deposits serve different purposes for different people. Some
people cannot save regularly. They deposit money in the bank only when
they have extra income. The purpose of deposit then is to keep money
safe for future needs. Some may want to deposit money in a bank for as
long as possible to earn interest or to accumulate savings with interest so
as to buy a flat, or to meet hospital expenses in old age, etc. Some, mostly
businessmen, deposit all their income from sales in a bank account and
pay all business expenses out of the deposits.

Savings Account
• A savings account can be opened with a bank or financial
institution, to earn interest on the balance maintained.
• This account should be opened with the objective of storing money
in electronic form. These days, most savings accounts can be used
for multiple purposes like paying bills, quick transactions, easy
credit, etc.
• It offers high liquidity and is very popular among the masses. It
does, however, have cash withdrawal and transaction limits to
promote digital payments.
• Banks provide an interest rate which is only slightly higher than
inflation, so it is not very optimal for investment. The interest
provided by Public sector bank is only 4%, however, some of the
private banks like Yes Bank and Kotak Bank offers interest between
6-7%.

Recurring Deposit
• It is a special type of term deposit where you do not need to deposit a lump sum
savings rather a person has to deposit a fixed sum of money every month (which
can be as low as Rs 100 per month).
• You should choose a recurring deposit when you want to inculcate the habit of
saving regularly and you don’t have a lump-sum amount to set aside.
• The interest rates on these accounts range from 5% – 7%, and varying rates are
offered to senior citizens. These accounts have maturities ranging from 6 months
to 120 months.
• You can also give a standing order to the bank to withdraw a fixed sum of money
from your saving account on every fixed date and the same is credited to RD
account. However, the bank may charge some penalty for delay in paying the
installments.
• Another unique feature of this account is that you can take a loan worth 80-90% of
your deposit by using this deposit itself as a collateral.
• There are no premature withdrawals allowed in the account, but for a penalty, you
can close the account before the maturity date of the deposit.

Current Account
• A current account is a special type of account that has lower restrictions than a
savings account when it comes to withdrawals and transactions.
• It is also known as a demand deposit account and it is meant for businessmen to
conduct their business transactions smoothly.
• These accounts should only be opened by you if you are a small businessperson
who has multiple monetary transactions on a daily basis.
• These are the most liquid deposits and there are no restrictions on the number
and the number of transactions in a day.
• Banks also offer overdraft facilities on these, i.e., they let account-holders
withdraw more money than there is in the account.
Moreover, there is no minimum balance required to be maintained here, unlike
other bank accounts.
• With the advancement of digital payments, banks also offer the best online
banking facilities to these accounts, which has helped them contribute more to
develop businesses in the economy.
• A disadvantage of these accounts is that banks do not pay any interest on these
accounts. Also, these accounts also charge hefty fees for their services and
maintenance.

Fixed deposit
• A fixed deposit (FD) is an investment avenue offered by banks, financial institutes and Non-Banking
Financial Companies (NBFCs)_that offers guaranteed returns with an interest rate ranging between
5%-9%.
• It gives a higher interest than a regular savings account and offers a wide range of tenures ranging
from 7 days to 10 years.
• You should try out a fixed deposit account when you want to build your habit of investing but your
risk appetite is quite low, since it offers guaranteed returns.
• You may or may not have a separate bank account to open a fixed deposit with the bank. These
days, banks also offer FDs which allow for tax exemptions of up to ₹1,50,000 per year under section
80C of the Income tax Act, 1961.
• Another benefit with FDs is that all interest amount below ₹40,000 are tax-free. Interest amounts
above ₹40,000 are subjected to Tax Deducted at Source (TDS).
• Just like a recurring deposit, you cannot make any premature withdrawals, but you can prematurely
shut down the deposit. You may be charged some penalty in case of early closure of FD account.
• However, with the focus of government to have a bank account for everyone under the scheme
of Pradhan Mantri Jan Dhan Yojana, you can open up a bank account for free if you do not have one
and enjoy various facilities offered by banks.

Certificates of Deposit/Time Deposit
Accounts
• Like a savings account, a time deposit account is
an investment vehicle for consumers. Also known
as certificates of deposit (CD), time deposit
accounts tend to offer a higher rate of return
than traditional savings accounts, but the money
must stay in the account for a set period of time.
In other countries, time deposit accounts feature
alternative names such as term deposits, fixed-
term accounts, and savings bonds.

• Practice Questions
• Q 1: Which of the following statements is not correct?
• A) Deposits made in savings bank account serve to meet
present as well as future needs.
• B) A fixed amount is required to be deposited in a Fixed
Deposit Account every month.
• C) The rate of interest on deposits made in a Recurring
Deposit Account is relatively higher than on savings bank
deposits.
• D) Home Construction Saving Deposit Account is a type of
recurring deposit account.
• Ans: B) A fixed amount is required to be deposited in a
Fixed Deposit Account every month.