Deposits: The most important activity of a commercial bank is to mobilise deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with a bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, the public are motivated to deposit more funds with the bank. There is also the safety of funds deposited with the bank. Banks are also called custodians of public money.
Basically, the money is accepted as a deposit for safekeeping, but since the banks use this money to earn interest from people who need money, they share a part of this interest with the depositors. The quantum of interest depends upon the tenure – the length of time for which the depositor wishes to keep the money with the bank – and the ease of withdrawal. The thumb rule is: the longer the tenure, the higher the rate of interest, and the lesser the restrictions on withdrawal, the lesser the interest.
1) Demand Deposits :
Demand deposits are also known as current deposits. They are those deposits which can be withdrawn by the depositor at any time by means of a cheque. No interest is paid on such deposits. Rather, the depositor have to pay something to the bank for the services rendered to the businessmen and industrialists. They are also called current accounts such deposits are of two types.
2) Current Deposits :
These accounts are maintained by the people who need to have a liquid balance. Current account offers high liquidity. No interest is paid on current deposits and there are no restrictions on withdrawals from the current account. These accounts are generally in the case of business firms, institutions and cooperative bodies. Nowadays, banks are designing and offering various investment schemes for deposit of money.
These schemes may vary from bank to bank. It may be stated that the banks are currently working out different innovative schemes for deposits. Such deposit accounts offer better interest rates and at the same time withdrawable facility also. These schemes are mostly offered by foreign banks. In the USA,
3) Savings Account :
The saving deposit promotes thrift among people. The savings deposits can only be held by individuals and non-profit institutions. The rate of interest paid on savings deposits is lower than that of time deposits. The savings account holder gets the advantage of liquidity (as in current a/c) and small income in the form of interests. But there are some restrictions on withdrawals. Corporate bodies and business firms are not allowed to open SB Accounts. Presently interest on SB Accounts is determined by RBI. It is 4.5 per cent per annum. Co-operative banks are allowed to pay an extra 0.5 percent on its savings bank deposits.
4) No Frills Account :
A) Concept : Credit rationing denotes a situation where a large section of loan accounts do not get the loans they seek. This has serious implications for a developing economy like India. The proposed no-frills account is a win-win opportunity for banks to cater to such a segment and attract profitable customers as part of their unsecured campaign.The no frills bank accounts will be an innovative instrument to introduce the concept of banking to the under-privileged as urged by the RBI in a recent move to the banking community to introduce the no frills account bring such section of people into the banking net.
B) Features :
i) Basic Banking Account: No frills account is a basic banking account
ii) Low Balance: The basic characteristic of such account is that it requires either zero or very low balance. Charges applicable to such accounts are low and services available to such accounts are limited. It means that it will be an account with limited transaction facilities.
iii) Instrument of Credit Rationing: Many financial economists believe that it could be an effective instrument to combat credit rationing and provide the much-needed credit to a large section of the under-privileged population in the country
- i) Concept for Large under Privileged Section: It is a concept expected to introduce the concept of banking to a large section of the underprivileged.
- ii) Creates Database of Customers: It will also help the banks to create a database of these customers. The banks, therefore, can prudently use this information to target the honest customers in their database to cross-sell various unsecured products.
- iii) Win-Win Opportunity: The no-frills account, therefore, is a win-win opportunity for India where the banks attract profitable customer as a part of their unsecured campaign.
- iv) Access to Credit Market: A large segment of underprivileged customers get access to the formal credit market without falling prey to the village moneylender.
Time Deposits : – Click Here