A Bank account is a financial account maintained by an individual, firms, companies, institutions, etc with a bank. Even banks have their own current accounts with the Reserve Bank of India. Different types of bank accounts are there depending upon the requirement. This is okay. But why we need a bank account at all? There are various reasons for it. Let’s look at them before looking into the different types of accounts.
Bank accounts offer convenience. It means if we have a bank account we can easily pay any amount anywhere instantly with internet banking, debit cards, etc. Even if we need to pay in cash, we can withdraw it from the nearby ATM.
Bank account offers safety to our hard earned money. If we have deposited our money in the bank account, then we don’t need to worry about theft, fire, etc. Even if the bank is robbed or declared bankrupt, it is not our headache anymore. Deposit Insurance and Credit Guarantee Corporation of India (DICGC) insures all bank deposits, such as saving, fixed, current, Recurring deposits for up to the limit of Rs. 100,000 of each deposit in a bank. Remember that DICGC’s headquarter is in Mumbai and Deputy Governor of RBI B.P.Kanungo is the Chairman of DICGC.
A bank account can help us to save money, as a bank pays interest on our deposits. The rate of interest varies depending upon the type of account and also varies from bank to bank.
These days bank account is cheaper if we ignore the minimum balance requirement prescribed by certain banks. In the digital era, deep discounts are offered if we pay with debit and credit cards instead of opting for cash on delivery.
Let’s get back and discuss the different types of bank accounts. The various types of bank accounts which we will discuss in this article are mentioned in this figure. Take a look at the figure and let’s proceed towards their individual explanation.
1). Savings Account
As the name indicates, Savings account is opened for the purpose of saving money. Generally, households, employees, students, pensioners open a savings account. Interest is offered by banks on the deposit in the savings account. The rate of interest is based on the discretion of the bank. In the past, before RBI had deregulated the savings bank interest rate regime, all banks were offering the same interest rate, which was 4% per annum. When RBI brought about changes in 2011, banks became free to decide the interest rate they wanted to pay on their savings bank accounts, depending on their liquidity and profitability preferences.
A Savings account comes with no limit on the number of times you can deposit money in your account. While there are certain restrictions on the number of withdrawals from ATM and the maximum amount that can be withdrawn. Minimum Average Balance requirement is also prescribed by some bank on the savings account.
2). BSBD Account
BSBDA Stands for Basic Savings Bank Deposit Account. Reserve Bank of India come up with BSBD Account guidelines in 2012. Before that, there were “no frills account” which were introduced back in 2005-06 by the RBI. Important points related to BSBD Account are as:
As per the Reserve Bank of India
Basic Savings Bank Deposit Account can be opened by any individual irrespective of his/her age or income.
Basic Savings Bank Deposit Account can be opened without any initial deposit. There is no need to maintain a minimum balance in this account.
A regular Savings bank account can be converted into Basic Savings Bank Deposit Account on the request of the customer.
Basic banking facilities like ATM cum debit card is offered free of cost to BSBD Account holders.
There is no limit on the number of deposits made in BSBD Account.
BSBD Account holders are offered a maximum of four withdrawals free of cost in a month including ATM withdrawals, transfers through RTGS/NEFT, internet debits, EMI’s (Equated Monthly Installments) etc.
BSBD Account holder cannot have a regular Savings bank account in the same bank.
3). Current Account
A Current account is generally opened with banks by business persons, firms, companies, institutions, government departments, etc. While each bank also has a current account with the Reserve Bank of India. In the current account, the liquidity of money deposited into the account is very high as there are no restrictions on the number of withdrawals as well as on the amount that can be withdrawn.
No interest is offered by banks on the current account. However, some other facilities like overdraft are offered to current account holders.
4). Recurring Deposit Account
Recurring Deposit account is beneficial for those individuals who want to save a certain amount regularly over a period of time. This is a good option for salaried persons, or even for self-employed persons to save a chunk of their earnings regularly. The interest rate offered on Recurring Deposit account is higher than that of savings account. A Recurring Deposit Account can be opened for a period from 6 months to 10 years. This can be any duration in between this range, but should be in the multiple of a month i.e. it can’t be 10 months 23 days like this. It should be either 10 months or 11 months or anything else. Interest offered on this type of account is compounded quarterly.
5). Fixed Deposit Account
Fixed deposits are investment instruments offered by banks and non-banking financial companies, where you can deposit money for a higher rate of interest than savings accounts and Recurring Deposit Account. You can deposit a lump sum of money in fixed deposits for a specific period, ranging from 7 days to 10 years.
Once the money is invested in the Fixed Deposit called as FD, it starts earning an interest based on the duration of the deposit. Usually, the defining criteria for Fixed Deposits are that the money cannot be withdrawn before maturity, but you may withdraw them after paying a penalty.
6). VOSTRO Account
VOSTRO means “Your Account with us”. It is the account of an overseas bank or foreign bank with some domestic bank. e.g. if the Bank of America opens an account with SBI, then it is called VOSTRO account for SBI.
7). NOSTRO Account
NOSTRO means “Our Account with you”. It is the overseas account which is held by the domestic bank with the foreign bank or with the foreign branch of some another domestic bank. e.g. Let SBI don’t have any branches in the USA. If SBI opens a bank account with Bank of America, then it is called NOSTRO account of SBI.
8). LORO Account
LORO means “Their Account with them”. It is in connection with any third bank. e.g. If PNB doesn’t have any NOSTRO account with any bank in the USA nor any branch there. Then if PNB bank uses NOSTRO account of SBI in the Bank of America, then it is called LORO Account for PNB.
9). Small Account
A person has to give his valid identity proof for KYC (know your customer) norms to open an account. But what if somebody doesn’t have any identity proof? Can they open an account? The answer is Yes. They are eligible to open “Small Account” as per the guidelines of Reserve Bank of India. A small account can be opened by providing a self-attested photo and signature in presence of the bank officer. It will be valid for only one year and can be extended to further one year if the account holder submits any proof that he or she has applied for any identity proof. In small accounts, balance cannot be exceeded 50,000 rupees at a point of time, total deposits in a year cannot be more than 1 lakh rupees, maximum withdrawal of up to 10,000 rupees is allowed in a month.
10). Demat Account
Demat Account stands for Dematerialized Account. A Demat Account is an account that allows investors to hold their shares in an electronic form. Stocks in Demat account remain in dematerialized form. Dematerialization is the process of converting physical shares into electronic format. A Demat account number is required to enable electronic settlements of all the trades. Demat account functions like a bank account, where you hold your money and respective entries are done in bank passbook. In a similar form, securities too are held in electronic form and are debited or credited accordingly. A Demat account can be opened with no balance of shares. You can have a zero balance in your account.
11). NRO Account (for Foreign Tourists)
This type of account can be opened by any foreign national who is on a short visit to India. This account can only be opened with bank branches which deal in foreign exchange. This type of account can be opened for a maximum duration of 6 months while the mode of account can be either savings account or current account. Payments exceeding 50,000 rupees needs to be done with Demand Draft or Cheque.
12). Non-Resident Ordinary Rupee Account
An NRO account can also be opened by a Person of Indian Origin (PIO) and an Overseas citizen of India (OCI). The mode of account can be either savings account, current account, recurring deposit account or fixed deposit type account. The interest rate paid on deposits cannot be higher than that offered on respective domestic rupee account for resident Indians. One needs to maintain a monthly average balance of 75,000 rupees in Non-Resident Ordinary rupee account.
13). EEFC Account
EEFC Account means Exchange Earner’s Foreign Currency Account. As the name itself tells a little, this type of account is opened by exporters to credit their foreign exchange earnings into the account directly. This helps to minimize transaction costs for them as they are not required to convert foreign currency into rupees.
All the foreign exchange earners whether individuals, companies or firms are eligible to open this account, but should be Indian. This account can only be opened with an authorized dealer & this is a type of current account.