Types of deposit accounts

Book referred: Banking Law and Practice
Author: Varshney

1. TYPES OF DEPOSIT ACCOUNTS Fixed Deposit Saving Deposit Recurring Deposit Current Account Deposit

2. Deposits with the bank is for fixed period of time Principal is repayable on expiry of the term Also known as term deposit Deposit period=3-6 years No cash reserves to be maintained High rate of interest 1.FIXED DEPOSIT

3. Rate of interest : A fter october 1997,banks were permitted to charge their own interest rates Interest to be paid according to the schedules in the act Interest rate varies from bank to bank Depends upon the amount and period of deposit Period of deposit : Minimum period of deposit was reduced to 7days from April 1997 Maximum period=5-10 years

4. Payment of interest: Interest may be paid quarterly or half-yearly or on the request of the depositor It is based on “half-yearly rests” or ”quarterly rests” Amount is credited to the depositor’s saving or principal a/c Withdrawal is not permitted through cheques

5. It is a document of title Features: Not a negotiable instrument Cannot be transferred by mere endorsement Duly assigned and given to the bank No cheques can be drawn FDR signed by the depositor and presented by 3 rd party,banker to get “Letter Of Authority” FIXED DEPOSIT RECEIPT :

6. Amount can be claimed by court’s order if FDR is lost Amount due can be attached by court No stamp to be fixed if the depositor is the prospective claimant FDR is concerned with D onotio Mortis causa Joint FD repayable to all or to one person Limitation period=according to conditions printed on back of the receipt If FDR is lost/destroyed-duplicate receipt -Indemnity Bond

7. FDR

8. Meant for personal savings Interest rate is less than that of FD Until 24.10.2011, interest rate=4% 2.SAVINGS DEPOSIT

9. Restriction on withdrawal : Number of withdrawal is 50 for 6 months Minimum withdrawal amount through, ( i ) cheque =Rs.5 (ii)Form =Rs.1 Restriction on deposit : Cheques and other instruments payable to 3 rd parties cannot be used

10. Minimum balance : banks prescribe their limit Usually,Rs.500-Rs.1000 Payment of interest : Calculated quarterly or longer rest on the minimum balance Calculated between 10 th and 30 th /31 st of every month Interest is credited twice in a year

11. NO FRILLS BANK ACCOUNT : Recently introduced Accounts are opened with nil balance Provide banking facility to all sections of society AADHAR ENABLED BANK ACCOUNTS : Accounts opened under Mahatma Gandhi National Rural Employment Guarantee Act

12. Also known as cumulative deposit Fixed amount of money is deposited every month(in multiples of Rs.100) Rate of interest is similar to FD Monthly instalments to be made before the last working day of the month Maturity period of the deposit=6-120months 3.RECURRING DEPOSIT

13. Default: If depositor closes a/c before maturity,bank : pays no interest for deposit less than 3 months 1.5% for 6 months 4% for 12 months Accumulated amount with interest is paid after a month of payment of last instalment

14. Introduced for business purpose No restriction on number/amount of withdrawal Deposits to be paid on demand(demand liability of the banker) No interest is given 4.CURRENT ACCOUNT DEPOSITS

15. Previliges : 3 rd party/endorsement cheques can be deposited for collection Overdraft facility Loans and advances are given Characteristics : No cash handling by the customer Bankers collect cheques etc. Regional Rural Banks(RRB) may pay 0.5% interest below borrowing rate fixed for RRB From May 1983,interest is paid at savings a/c rate for deceased depositor from date of death till payment to legal hiers

16. SAVINGS PLUS AUTO SWEEP FACILITY A/C : Surplus amount in savings a/c is converted to term deposits Earns interest at a high rate Provides liquidity Minimum balance of savings a/c=Rs.5000 Auto sweep may be weekly or monthly Reverse sweep facility =withdrawal is made in multiples of Rs.1000 through cheques,ATMs etc.

17. PREMIUM SAVINGS ACCOUNT : Similar to savings a/c offers additional facilities like SMS alert,RTGS /NEFT free internet banking Minimum bal.=Rs.25000 MULTI OPTION DEPOSIT SCHEME(MODS) : Combination of FD and saving or current a/c Minimum deposit amount=Rs.10000 Minimum subsequent deposit amount=Rs.5000 Period of deposit=12-60months Overdraft facility

18. KNOW YOUR CUSTOMER(KYC)

19. KYC To protect the interest of the customers,RBI advised banks to exercise diligence in understanding the customer and nature of his business . Guidelines are given by RBI Objectives : Preventing money laundering Improve financial dealings Manage risks

20. Key Elements : 1.Customer acceptance policy- No account to be opened in anonymous name Risks to be clearly defined Documents to be collected and verifications to be done Banker cannot close/open an account if they are unable to apply customer due diligence Circumstances in which customer can act on behalf of other person to be specified

21. 2.Customer identification procedure- Customer verification through documents and photographs For legal entites,bankers should verify: Legal status Any person acting on behalf of legal entity Understanding control structure & ownership of customer 3.Monitoring transaction- Special attention given to complex transactions Intensified monitoring for high risk a/c Record of all transactions Illegal transaction to be reported easy monitoring through customer understanding

22. 4.Risk Management- Apply various anti-money laundering measures Other Aspects- Employee training Customer education Credit/debit/smart/gift cards Existing accounts Procedure in compliance with KYC guidelines- Identification of depositors Control of financial frauds Identification of money laundering Monitoring of large value cash transaction

23. Unique Customer Identification Code(UCIC) : Came into existence from June 2012 Benefits: Identify a customer Track facilities availed Monitor financial transaction Improve risk profiling Smoothen banking operation Holistic view of CR profile

24. THANK YOU!