Types of Bank Accounts in India

Bank accounts are essentially arrangements with the bank to hold money and use banking services. They can be broadly of the types we already touched on: Savings, Current, Recurring Deposit, Fixed Deposit accounts, etc., each serving different needs. Additionally, banks offer variations like joint accounts, accounts for minors, and specialized NRI accounts (NRO/NRE) for Non-Resident Indians. Below, we outline key account types and their features:

Savings Account

A Savings Account is the most common type of bank account for the general public. Its primary purpose is to encourage savings while allowing easy access to funds when needed. Key features include:

• Interest Earnings: The bank pays interest on the balance in a savings account. The interest rate can vary by bank and economic conditions (often in the range of 3% to 6% per annum). Interest is usually calculated daily on the closing balance and credited quarterly or monthly, as per the bank’s policy.
• Liquidity: Account holders can deposit money any number of times. Withdrawals are also flexible, though banks may impose certain limits or charges on excessive withdrawals (particularly for Basic Savings Bank Deposit Accounts which are often no-frills accounts). Generally, savings accounts allow a reasonable number of withdrawals or ATM transactions per month without fees.
• Minimum Balance: Many savings accounts require maintaining a minimum average balance (which could be a few hundred or few thousand rupees) or else a fee is charged. However, no-frills accounts like BSBDA have no minimum balance requirement, ensuring anyone can open and maintain an account. Some banks offer salary accounts (special savings accounts for salaried employees) that also waive minimum balance requirements as long as regular salary credits come in.
• Services: Savings accounts come with an ATM/Debit Card, passbook or account statements, cheque book (on request), online banking, mobile banking, and fund transfer facilities. They also allow standing instructions and auto-debits for bill payments, etc., making them convenient for routine financial transactions.

Savings accounts are ideal for individuals, households, students, pensioners, etc., to keep their money safe while earning some interest and retaining the ability to withdraw whenever needed for expenses.

Current Account

A Current Account is designed for business entities and others who need to perform a large number of banking transactions regularly. Key characteristics include:

• No Interest: Unlike savings accounts, current accounts typically do not pay any interest on the balance. The focus is on transaction convenience, not savings.
• Unlimited Transactions: Current accounts allow unlimited deposits and withdrawals in most cases without fees on transactions (although there might be cash handling charges beyond certain limits). This makes them suitable for traders, companies, and organizations that handle daily inflow and outflow of funds.
• Overdraft Facility: One major feature is the availability of an overdraft facility. The account holder can withdraw more money than is in the account, up to an approved limit, essentially taking a short-term loan from the bank. This helps businesses manage short-term funding gaps (working capital needs). Interest is charged on the overdraft amount used.
• Higher Minimum Balance: Current accounts often require higher minimum balances (since they don’t earn interest and provide more services). Falling below the required balance can incur penalties.
• Other Services: Current accounts come with cheque books, online banking, and often dedicated relationship managers for large accounts. Banks may bundle services like salary payments, bulk payment processing, merchant services (card swipes), etc., with current accounts for businesses.

Current accounts are meant for commerce and business, providing maximum flexibility in operations. For example, a shopkeeper, a company, or a society would use a current account for their daily receipts and payments. Since they are not for personal savings, the emphasis is on fluid cash flow and not on earning interest.

Recurring Deposit Account (RD Account)

A Recurring Deposit account is actually not a transactional account like savings or current, but a term-deposit account that we open to systematically save. Opening an RD account means committing to deposit a fixed amount every month for a specified period.

Key points about RD accounts:

• Fixed Periodic Installments: When opening an RD, the customer decides the monthly installment amount and the duration. For example, ₹2000 per month for 2 years. This installment remains fixed throughout. Many banks have a low minimum installment, even as low as ₹100 or ₹500, making RDs accessible.
• Tenure: The duration can range widely. Common minimum tenure is 6 months, and maximum can be 10 years (120 months). The depositor can choose in multiples of 3 months in many cases.
• Interest: The interest rate on RDs is usually the same as the rate for fixed deposits of corresponding tenure. Interest is compounded (typically quarterly) and paid at maturity along with the principal deposits. An RD essentially accumulates into a lump sum at the end of the term.
• Passbook/Statement: Banks provide a passbook or e-statements for RD accounts to track deposits and accrued interest.
• Premature Withdrawal/Default: If the depositor stops paying the monthly instalments or wants to close the RD before maturity, rules vary. Generally, there is a penalty for early closure (a reduced interest rate). If one or two installments are missed, some banks may allow continuation of the account with a penalty fee or by extending the maturity by the missed months. Consistently missing payments could lead to account closure with payout of whatever amount accumulated (with penalty interest).

RD accounts are useful for people who have a regular income and a savings goal (like a future purchase, education fund, etc.). It instills financial discipline by requiring a fixed saving every month and yields a sum with interest at the end. For example, an RD can help save for a vacation or an emergency fund gradually.

Fixed Deposit Account (FD Account)

A Fixed Deposit account is another term-deposit account where one keeps a lump sum for a fixed period. We discussed FDs earlier in deposit types. In the context of account types:

• When an FD account is opened, the money is debited from the savings/current account and placed into a separate FD account (often indicated by an FD receipt or certificate). The account holder cannot operate this account like a regular bank account; it’s purely for the deposit to stay until maturity. There is no chequebook or ATM access on an FD account.
• Maturity and Withdrawal: At the end of the term, the FD account “matures”. The bank typically gives options: renew the FD for another term, or credit the maturity amount (principal + interest) to the person’s savings account. If the customer needs money earlier, they can break the FD by instructing the bank; they will then receive the principal plus interest accrued till date minus any penalty (usually interest 1% less than contracted rate for the period actually run).
• Variations: Within FDs, there are variations like cumulative FDs (interest paid at maturity along with principal) and non-cumulative FDs (interest paid out monthly/quarterly to the savings account – useful for people needing regular interest income). Also, flexi FDs linked to savings accounts, as noted under special schemes, can be considered a variation where part of the savings balance is turned into FDs automatically.

FD accounts are a cornerstone for risk-averse investors looking for guaranteed returns. They are easy to open and understand – one deposits money and gets back a larger amount after a set time. The trade-off is limited liquidity.

Joint Accounts

A Joint Account is any bank account that is owned by two or more individuals together. Joint accounts can be savings or current (or even FDs and RDs can be in joint names). The main points about joint accounts:

• Modes of Operation: Joint accounts typically have instructions like “Either or Survivor”, “Former or Survivor”, “Jointly”, etc., which define how the account is operated.
  • Either or Survivor: Any one of the two account holders can operate the account (sign checks, withdraw, etc.) independently. If one passes away, the survivor can continue to operate.
  • Jointly: All parties need to sign/consent for transactions. This is less common for day-to-day accounts, but might be used in certain cases like requiring dual control.
  • There are other modes (like for more than two people, anyone or survivor, etc.), but either-or-survivor is a common and convenient one for, say, spouses.
• KYC for All: All joint account holders have to undergo KYC and provide identity/address proofs. Each is considered a full account holder.
• Uses: Joint accounts are commonly used by couples, family members, or business partners who want shared access to funds. For example, a husband and wife might open a joint savings account for household expenses.
• Survivorship: Joint accounts generally have survivorship rights, meaning upon the death of one account holder, the funds legally belong to the survivor (depending on the operating mode specified) without needing complex legal procedures. This makes managing finances easier for families.
• Limit on Number of Holders: Banks often allow up to a certain number of individuals (say, 3 or 4) to jointly hold an account, though practically most joint accounts are just two people.

Joint accounts provide flexibility and shared responsibility. However, each joint holder also has equal rights to the funds, so trust between parties is essential.

Minor Accounts

Banks allow minors (children under 18 years) to have bank accounts, usually under the guidance or guardianship of a parent or another adult. Key points about accounts for minors:

• Under Guardian’s Control: For very young children (typically below 10 years), the account is operated by a parent/guardian on the child’s behalf. The guardian’s signature is used for withdrawals or any instructions, and the minor’s name is on the account as the beneficiary.
• Self-Operated Minor Accounts: Many banks permit children above a certain age (e.g., 10 years and above) to operate their savings account independently, with some restrictions. These accounts often don’t issue a cheque-book or high-value transactions without guardian consent, but they may give an ATM/debit card with a low withdrawal limit to the minor. This is to help children learn banking early. For instance, a 15-year-old might have a self-operated account for their pocket money.
• No Overdrafts: Minor accounts are generally savings accounts with no credit facility (no overdrafts or loans). The account usually must always remain in credit.
• Conversion at Majority: Once the minor turns 18, the account needs to be converted to a regular (adult) account. The erstwhile minor would then have to fulfill full KYC in their own capacity and the guardian’s mandate is removed.
• Features: Banks often waive minimum balance requirements for minor accounts, and provide freebies like junior ATM cards, fun-themed passbooks, etc., to encourage minors (and their parents) to open accounts.

Minor accounts are a part of financial inclusion efforts and are also useful for parents to set aside money for their child (like a separate savings for college, etc.). They operate under safeguards to protect the child’s funds until they are an adult.

NRO/NRE Accounts (for Non-Residents)

India has a large number of citizens who live or work abroad. For such Non-Resident Indians (NRIs), banks offer special categories of accounts: NRO and NRE accounts. These accounts help NRIs manage their money in India, whether it’s income earned in India or money remitted from overseas. Briefly:

• NRO (Non-Resident Ordinary) Account: An NRO account is primarily meant to manage income earned in India by an NRI. For example, if an NRI has rental income, dividends from investments, or a pension in India, those funds can be deposited in an NRO account. An NRO can be a savings or fixed deposit account in Indian Rupees. Key features: The interest earned on NRO deposits is taxable in India (TDS is deducted). Also, repatriation (sending money back abroad) of the principal from NRO accounts is limited – currently up to USD 1 million per financial year is allowed (with proper documentation) for an NRI/PIO. However, the interest amount in NRO is fully repatriable after taxes. NRO accounts can be held jointly with a resident Indian (e.g., an NRI and a family member in India can be joint holders) or with another NRI. The funds in NRO are maintained in INR and intended for use in India (paying local expenses, etc.).
• NRE (Non-Resident External) Account: An NRE account is used to park foreign income in India. This means an NRI can remit money earned abroad (say salary from a job in the US) into an NRE savings or fixed deposit account, where it will be held in Indian Rupees (the foreign currency is converted to INR on deposit). Key features: Both principal and interest in NRE accounts are fully repatriable – an NRI can transfer money back out from NRE to a foreign account freely. The interest earned on NRE accounts is tax-free in India (no Indian income tax on interest). NRE accounts must be held only with other NRIs (jointly); you can’t have a resident Indian as a joint holder (except maybe a mandate holder for operation). The NRE account is ideal for NRIs who want to save or invest in India using their overseas earnings, yet retain the ability to take the money back abroad. Since the deposit and withdrawal on NRE involve foreign exchange conversion, the amounts will be subject to exchange rate risk (value can fluctuate with currency rates).

Both NRO and NRE accounts are part of RBI’s regulations for foreign exchange. In practical use:

• Use an NRE account to keep your overseas money in India (good for savings, investments, and earning tax-free interest, with liquidity to move money back abroad).
• Use an NRO account to collect and use your India-sourced incomes (and pay any due taxes on them in India).

Additionally, there is FCNR (Foreign Currency Non-Resident) Account, which is a fixed deposit kept in foreign currency (USD, GBP, etc.) by NRIs so that they don’t take exchange rate risk. FCNR deposits and their interest are also tax-free and fully repatriable. However, FCNR is a bit more niche and not in our main outline, just note it exists as another option for NRIs.