Banking Awareness 2017 in Simple Language - Lesson 9

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Dear Gr8 Ambitionists, in our yesterday's Banking Awareness 2017 Lesson 8, we have learnt about the Types of Banks. In today's lesson, we shall learn about the Types of Bank Accounts. I know you will be bored if I keep on sharing details of 10+ types of bank accounts. So, here I will try to make it short and simple in banking exam point of view. But please re-read the points which are highlighted in bold. Those are very important and asked in previous IBPS and other bank exams. Happy Reading :)

Banking Awareness 2017 : Types of Bank Accounts

Current Account :

• Mainly used for Business by persons, firms, companies, public enterprises etc.
• No interest is paid by the bank. 
  
• No limit of transaction in a day.
• Banks take certain service charges. 
• Cheque book faciity available. 
• Current account becomes inoperative where no transaction is done for last 2 years. 

Savings Account :

• This account can be opened individual, single or jointly. 
• Bank pays interest for savings in this account.
• Interest is paid on daily basis from April 2010.
• Savings account becomes inoperative where no transaction is done for last 2 years. 

Recurring Deposit Account (RD A/C) :

• Opened for regular monthly savings for certain period for higher rate of interest. 
• Fixed amount is deposited for a fixed period. 
• Minimum deposit term 6 months, maximum 10 years. 
• No withdrawals are allowed before maturity.

Fixed Deposit Account (FD A/C) :

• Certain sum of money is deposited for specific period of time.
• Deposited money can't be withdrawn before maturity period but can be closed before maturity with penalty. 
• Rate of interest is decided by banks individually. 
• Minimum term of FD is 7 days and maximum term is 10 years. 

Joint Account :

This reminds me of a old joke....

A guy walked into a bank and said, "I want to open a joint account".

The cashier was very happy. "Sir, with who you want to open the Joint Account ?", he asked politely. 

"You need to say that, who is the richest customer of your bank ?" asked the guy.

Now you got the basic idea of a Joint Account. A joint account is an account that belongs to more than one person. Both current and savings accounts can be opened jointly. There are following options for allowing transactions as they want :

• Jointly
• Either or Survivor
• Former and Survivor 
• Any one

No-frill Accounts / BSBDA

All the existing no frill accounts opened now treated as "Basic Savings Bank Deposit Account" (BSBDA) from 22nd August 2012.

• Minimum balance requirement is zero.
• Maximum 4 withdrawals in a month, including ATM withdrawals.
• No limit on the number of deposits. 
• KYS is compulsory. 
• Note  If such account is opened on the basis of simplified KYC norms, the account would additionally be treated as "Small account".
•  [By submitting your recent photograph & putting yous sign or thumb impression]
• Limits in BSBDA (Accounts with introduction / small accounts) :
• Aggregate of all credits in a financial year does not exceed Rs. 1 lac. 
• The aggregate of all withdrawals and transfers in a month does not exceed Rs. 10, 000.
• Balance at any point of time does not exceed Rs. 50,000.
• Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an officially valid document. 

PPF Account (Public Provident Fund)

Introduced by National Saving Institute of Ministry of Finance - 1968

• Objective : To mobilize small savings and also provide income tax benefit. 
• Minimum yearly deposit is Rs. 500 and maximum 1.5 lac (w.e.f August 2014).
• Amount can be deposit in lum sum or in installment per year. 
• Interest for PPF a/c is decided by Government of India.
• Interest calculated on lowest balance between 5th day and last day of every month. 
• Duration of scheme is 15 years but can be extended 1 or more block of 5 years each.
• Nomination facility is also available. 

DEMAT Account (Dematerialized Account) :

It is the account in which investor gets facility to take possession of shares in electronic form not physical form.

With the help of Demat a/c a person can only store his shares but if he wants to buy or sell shares he needs to have trading account also.

Difference between DEMAT and Trading accounts
In short demat account is storage facility of shares while trading account is transaction medium to buy or sell the shares.

Dematerialisation :
It is the process of converting physical shares into electronic format. An investor who wants to dematerialise his shares needs to open a demat a/c with depository participant.

Depository Participant (DP)

It is the market intermediary through which investors can avail the depository services. DP provides financial services and include organization like banks, brokers, custodians and financial institutions.

HUF Account (Hindu Undivided Family)

KARTA or a HUF is the senior most male member of the family and in financial terms he can also be called manager of family. Signature of Karta will be required for every transaction from the bank.

Benefits :

• Tax rebate available under sections 80 C, 88 and 80 L for HUF Accounts. 
• Gift collected up to 50,000 Rs. will be tax free. 

Features :

• HUF will have unique PAN Card along with PAN Card of Karta. 
• KARTA has sole authority over HUF account and each transaction on behalf of HUF, made by each family member will be govern by Karta. 

Bank Account for Minor

Minors are the people of small age group (0 to 18 years).
A minor can have an account under guardianship as well as self operate. According to RBI, bankss are advised to open deposit accounts with Natural Guardian (Mother / Father) or Legal Guardian for its operation.

Features :

• Minor above age 10 years may be allowed to open and operate savings bank accounts independently. It is called Sole Minor Account. 
• Banks can offer minor ATM, cheque books facility etc., but can't provide them overdrawn facility. 
• Minor can be partner in a firm but cannot be liable personally for act of firm.
• A minor cannot appoint nominee however minor can be appointed as nominee. 
• Important Note : A minor can't give stop payment instructions on a cheque issued by partnership. 

Nostro & Vostro Accounts

The terms nostro & vostro are used, mainly by banks, when one bank keeps money at another bank.

• A Nostro a/c is account of Domestic Bank outside the country (Our account with you). 
• Example : SBI opens a current a/c with CITI Bank in New York.
• A Vostro a/c is account for foreign bank in Domestic Territory (Your account with us). 
• Example  CITI Bank opens current account with SBI in Delhi. 
• Important Points to Note : 
• A NOSTRO a/c will be in a foreign currency. 
• A VOSTRO a/c will be in a local currency of the bank where the money is being held. 

Correspondent Account

It is an account (often called a nostro & vostro a/c) established by a banking institution to receive deposits from, make payments on behalf of or handle other financial transactions for another financial institution. These accounts are established through bilateral agreements between two banks.

Commonly these are the accounts of foreign banks that require the ability to pay & receive the domestic currency. Such accounts are necessary for International Trade.

Nomination :

The bank asks their account holders to make nomination which mean that, they should nominate persons to whom the money lying in their accounts should go in the event of their death.

Note : Minor can't nominate any person in the Bank.

That's all for now friends. In our next Banking Awareness lesson, we shall learn about Know Your Customer (KYC) and Basic Banking Services. Keep visiting. Good Day :)

• Read Lesson 1 from Here
• Read Lesson 2 from Here
• Read Lesson 3 from Here
• Read Lesson 4 from Here
• Read Lesson 5 from Here
• Read Lesson 6 from Here
• Read Lesson 7 from Here
• Read Lesson 8 from Here

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