Bank Deposits & Accounts

One of the most important functions of any commercial bank is to accept deposits from the public, basically for the purpose of lending. Deposits from the public are the principal sources of funds for banks.

Safety of bank deposits – Bank deposits are assumed to be safe. Are they really safe? Deposit Insurance and Credit Guarantee Corporation (DICGC) a wholly owned subsidiary of Reserve Bank of India (RBI) is the institution which has the responsibility of insuring deposits of customers made in banks. Deposits made by a customer in a bank upto Rs. 100000 is insured by DICGC.

Deregulation of Savings Bank Deposit Interest Rate – Banks are free to determine their savings bank deposit interest rate. This deregulation is applicable to savings bank deposits of resident Indians only. This deregulation is effective since October 25, 2011.

Types of Deposits – The bank deposits can be classified into

  • Demand deposits:  Deposits those are payable on demand through cheque or otherwise. Demand deposits serve as a medium of exchange, for their ownership can be transferred from one person to another through cheques and clearing arrangements provided by banks. They have no fixed term to maturity.
  • Time Deposits:  Those deposits which are not payable on demand and on which cheques cannot be drawn. They have a fixed term to maturity.

Different deposit accounts (Savings, Current etc.) offered by a bank fall into one of these categories i.e. Demand Deposit, Time Deposit or combination of both.

Types of Deposit AccountsThere are several deposit accounts offered by banks in India; but they can be classified into three main categories:

  •  Current account: A current account is a form of demand-deposit, as the banker is obliged to repay these liabilities on demand from the customer. Withdrawals from current accounts are allowed any number of times depending upon the balance in the account or up to a particular agreed amount. Current deposits are non-interest bearing.
  •  Savings bank account: Savings deposits are a form of demand deposits, which is subject to restrictions on the number of withdrawals as well as on the amounts of withdrawals during any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits. Current Account and Saving Account deposits are collectively termed as CASA (Current Account and Savings Account) deposits. CASA deposits are low cost deposits to banks. A bank generally tries to maintain high CASA deposit.
  •  Term deposit account: Term deposit is a deposit received by the Bank for a fixed period, after which it can be withdrawn. Term deposits include deposits such as Fixed Deposits, Reinvestment deposits, Recurring Deposits etc. Interest is paid on term-deposits, either on maturity or at stipulated intervals depending upon the deposit scheme under which the money is placed.

References: NCFM CB Module




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