People open different bank types for different purposes and requirements. It is always a smart choice to open a bank account according to your individual financial goals. This will not only ensure you get the right tools for spending and saving but will also increase your chances of meeting these goals. Additionally, with the right choice, you can maximize your returns from the bank, decrease your fees considerably and manage your money at your convenience.
Generally, a bank will offer you the following types of accounts:
- Savings accounts
- Checking or current account
- Salary accounts
- Fixed Deposits
- Recurring deposits
- NRI accounts
Let’s now briefly understand each of these accounts and what they have to offer.
1. Savings accounts:
These are personal accounts used to save up money for the future. The credit and debit in it follow the general personal account rule which is debit the receiver and credit the giver. The deposit gets interest over time hence the amount of money increases. This is generally the first type of bank account that anybody opens. These accounts are used by everyone from children to teens to adults.
A savings account can be extremely useful for keeping your cash to meet your financial goals and emergency separately from the money for everyday use.
Pros: A good first account especially for kids and teens to earn interest or park cash. You can easily credit or debit money in it using the Bhim UPI QR code
Cons: Typically savings accounts yield lower interest than money market accounts or certificates of deposits.
2. Checking or current accounts:
These are real accounts and are used for everyday spending. These are especially common among businessmen who have a need for regular transactions with the bank. The kinds of transactions include deposits, withdrawals and contra transactions. These can be opened in either a cooperative bank or a commercial bank. You can withdraw or deposit from a current bank at any time without any notice. These are also good for paying the creditors via cheques
Pros: As a current account holder you get an overdraft facility
Cons: The money kept in current accounts do not typically earn interest
Salary accounts: these are a type of nominal account opened in accordance with the tie-up between your employer and the bank. Salaries are deposited in this bank at the start of a pay cycle. Your salary account is also where your reimbursement accounts are present for the allowances and reimbursements from the company.
Pros: Employees have the option of choosing the type of salary account based on the features they’d want
Cons: The choice of the bank are generally limited to the banks that your company has a relationship with.
4. Fixed deposit account
These are generally opened to hold a fixed amount of money for a specific period of time to earn a good rate of interest on it.
Pros: Excellent choice for meeting financial goals and the rates of interest are higher than a savings account
Cons: There is a lock-in period during which you cannot take out the money without penalties.
5. Recurring deposit account:
These have a fixed tenure and you need to invest money in it at a regular frequency to earn a good rate of interest. Unlike Fixed deposits here the lump sum deposits are made frequently although the money you need to
Pros: The money you need to deposit at every interval is considerably smaller than FD(Fixed Deposit).
Cons: You cannot change the tenure
- NRI accounts
The types of bank accounts vary for Indians and People of Indian origin living abroad. There are three types of NRI accounts possible:
- Non-Resident Ordinary (NRO) savings accounts for fixed deposit accounts
These are rupee accounts, wherein once the money is deposited it is converted to the Indian currency at the current exchange rate. These accounts are used for payments like rent, pension etc. The income earned on the deposits made in these accounts is taxable.
- Non-Resident External (NRE) savings accounts or fixed deposit accounts
These are similar to NRO accounts except they are used for your earnings from abroad. The interest earned on these deposits is not non-taxable in India
- Foreign currency non-resident (FCNR) account
Unlike the other two types of bank accounts, FCNR accounts maintain funds in foreign currency. The principal and interest earnings of the accounts are transferable. However, the interest is not taxed in India.