In the world of banking, you have various options when it comes to depositing your money. Each option serves a different purpose and offers unique benefits. Understanding the different types of bank deposits available can help you make informed decisions about where to store your funds and how to maximise your returns.
When it comes to types of bank deposits, there are four common categories: savings bank accounts, current deposit accounts, fixed deposit accounts, and recurring deposit accounts. Let's explore all four categories in detail.
What are the Different Types of Deposits?
1. Savings Account
The main purpose of this bank account, as the name suggests, is savings and is the best type of deposit account for people looking to save their definite income with low risk. You can see most salaried employees choosing this type of deposit account as it's one of the lowest-risk accounts and is the most flexible in depositing money.
You can open a savings bank account even with a minimum deposit fee, depending from bank to bank, and you can deposit your money any time at any interval in a savings account. Even the withdrawal process is easy. You can withdraw by issuing a cheque, signing a withdrawal form, or through your ATM card. However, the number of withdrawals is restricted depending on different banks.
Further, if you open a savings account, you can also get interest rates on your savings. The interest rates vary from bank to bank and change as per the market situation. One thing to keep in mind before selecting a bank for opening a savings account is to know the cash deposit limit in a saving account as per income tax.
2. Current Deposit Account
A current account is another common type of bank deposit account mostly made by businessmen, institutions, companies, or other individuals who have to make regular transactions since there are fewer restrictions on the number of transactions or withdrawals made.
Like the savings deposit account, even a current account requires a minimum amount for opening the account, but you don't get any interest rates on the balance. The best benefit of a current account is the overdraft facility for certain customers, allowing you to temporarily withdraw more money than the available balance up to a predetermined limit.
3. Fixed Deposit Account
A fixed deposit account is a type of bank deposit offered by financial institutions, where you can deposit an amount for a fixed period at a predetermined interest rate. The deposit term can range from a few months to several years.
The money is locked in for a predetermined period, ranging from a few months to several years. During this time, the account holder cannot withdraw the funds without incurring penalties. Moreover, the interest rate on a fixed deposit is fixed at the time of opening the account and remains constant throughout the tenure of the deposit. This ensures that the depositor knows exactly how much interest they will earn on their investment.
The best part about this bank deposit account type is its low-risk nature. Since they are typically insured by the government up to a certain limit, even if the bank fails, the depositor's funds up to the insured limit will be protected.
4. Recurring Deposit Account
A recurring deposit account, commonly known as an RD account, is a type of bank deposit account offered by banks and financial institutions designed to encourage regular savings and disciplined financial planning. In a recurring deposit account, you can deposit a fixed amount of money at regular intervals, usually monthly, for a predetermined period. You can choose the frequency of deposits, which is usually monthly, and the amount to be deposited each month is fixed when the account is opened.
The tenure of an RD account can vary depending on the bank or financial institution. Common tenures range from 6 months to 10 years. You can select the tenure at the time of account opening. You can earn interest rates on this type of deposit account. The interest rate is predetermined and is usually lower than that of a fixed deposit due to the regular nature of deposits.
Understanding the different types of bank deposits is crucial for anyone looking to manage their finances effectively. By understanding these options, you can make informed choices about where to keep your money and how to grow your savings.