Types of Bank Deposits in India

Banks are regarded as custodians of public money, and the mobilisation of deposits from the public is their most important function. Deposits constitute the primary source of funds for commercial banks and form the basis for credit creation in the economy. In India, bank deposits are broadly classified into demand deposits and time (term) deposits, based on liquidity, tenure, and withdrawal conditions. Over time, banks have also developed specialised deposit schemes to meet diverse customer needs and improve deposit mobilisation.

Concept and Classification of Bank Deposits

A bank deposit is money placed by customers with a bank for safekeeping, transaction purposes, or earning interest. From a functional and regulatory perspective, deposits are classified into:

• Demand deposits, which are withdrawable on demand without prior notice, and
• Time deposits, which are accepted for a fixed tenure and earn higher interest in return for reduced liquidity.

This classification is critical for understanding bank liquidity management, cost of funds, and monetary aggregates, as demand deposits form part of the money supply.

Demand Deposits

Demand deposits are accounts from which funds can be withdrawn at any time without prior notice to the bank. These deposits provide maximum liquidity and are primarily used for day-to-day transactions. There is no fixed maturity, and ownership of funds can be transferred through cheques or electronic payment systems.
Demand deposits usually offer lower returns compared to term deposits. While savings accounts earn modest interest, current accounts generally do not pay any interest.

Savings Accounts

Savings accounts are designed for individuals to save money while retaining liquidity. They earn interest at rates decided by banks within regulatory guidelines issued by the Reserve Bank of India. Banks may impose limits on the number of free withdrawals to encourage savings and manage operational costs.
Savings accounts are widely used by salaried employees, students, pensioners, and households. To promote financial inclusion, banks also offer Basic Savings Bank Deposit Accounts (BSBDA), which require no minimum balance and provide essential banking services.

Current Accounts

Current accounts are demand deposits primarily meant for businesses, firms, and professionals who require frequent and high-volume transactions. These accounts allow unlimited deposits and withdrawals and often provide additional facilities such as overdrafts, cash management services, and trade-related banking products.
Current accounts do not earn interest and typically require the maintenance of higher minimum balances.

Time Deposits

Time deposits, also known as term deposits, are accepted by banks for a specified period and cannot ordinarily be withdrawn before maturity without penalty. In return for this restriction on liquidity, time deposits offer higher interest rates than demand deposits. Interest rates generally increase with longer tenures and higher deposit amounts.
Time deposits are an important and stable source of funds for banks.

Fixed Deposits

A fixed deposit involves a one-time lump-sum deposit for a predetermined period at a fixed rate of interest. Tenures can range from a few days to several years, depending on bank offerings. Interest may be paid periodically or compounded and paid at maturity.
Fixed deposits are considered a low-risk savings instrument and often come with facilities such as nomination and loans or overdrafts against the deposit.

Reinvestment and Flexi Deposits

In reinvestment deposits, interest is compounded periodically and paid along with the principal at maturity. A popular variant is the flexi or auto-sweep deposit, where surplus balances in a savings account beyond a threshold are automatically converted into term deposits and reconverted when liquidity is required. These products combine the liquidity of savings accounts with the higher returns of fixed deposits.

Recurring Deposits

Recurring deposits allow customers to deposit a fixed amount at regular intervals, usually monthly, over a fixed tenure. At maturity, the depositor receives the total of all instalments plus interest, which is generally comparable to fixed deposit rates.
Recurring deposits promote disciplined savings and are particularly suitable for individuals with regular income. Typical tenures range from six months to ten years, with relatively low minimum instalment requirements.

CASA Deposits

CASA deposits refer to Current Account and Savings Account balances taken together. These deposits are a low-cost source of funds for banks compared to term deposits. A higher CASA ratio indicates greater reliance on inexpensive and stable funding, improving a bank’s profitability and resilience to interest rate fluctuations.
Banks actively promote CASA deposits through salary accounts, digital payment solutions, and cash management services.

Special Deposit Schemes

Banks offer various special deposit schemes to cater to specific customer segments or to provide additional benefits.

• Tax-Saving Fixed Deposits: These are fixed deposits with a five-year lock-in period that qualify for tax deduction under Section 80C of the Income Tax Act. Premature withdrawal is not permitted, and interest earned is taxable.
• Senior Citizens’ Deposits: Senior citizens are typically offered higher interest rates on term deposits. In addition, banks facilitate government-backed schemes such as the Senior Citizens’ Savings Scheme, which provides regular income and capital safety.
• Deposits with Value-Added Benefits: Some banks offer deposits bundled with insurance cover or lifestyle benefits, combining fixed returns with additional protection or services.

These schemes are often time-bound and subject to specific eligibility conditions.

Deposits for Non-Resident Indians

Banks in India provide specialised deposit accounts for non-resident Indians under foreign exchange regulations.

Non-Resident Ordinary Account

A Non-Resident Ordinary account is a rupee-denominated account used to manage income earned in India, such as rent or interest. Existing resident accounts are typically converted into NRO accounts when an individual becomes a non-resident.

Non-Resident External Rupee Account

The Non-Resident External Rupee account is funded through remittances from abroad and maintained in Indian rupees. Both principal and interest are repatriable, though the depositor bears exchange rate risk.

Foreign Currency Non-Resident Account

The Foreign Currency Non-Resident Account (Bank) is maintained only as a term deposit in designated foreign currencies such as the US Dollar, Pound Sterling, Euro, Japanese Yen, Canadian Dollar, and Australian Dollar. These deposits have tenures ranging from one to five years, and both principal and interest are fully repatriable in the same currency.

Regulation of Interest Rates and Deposit Safety

Deposit interest rates are determined by banks’ boards, subject to regulatory guidelines issued by the Reserve Bank of India. Certain account conversions, such as between non-resident deposit categories, are permitted under prescribed conditions.
To protect depositors, bank deposits in India are insured by the Deposit Insurance and Credit Guarantee Corporation up to the notified limit. In the event of bank failure, merger, or liquidation, insured depositors are compensated in a time-bound manner.