Different Modes of Acceptance of Deposits by Commercial Banks

The most important activity of a commercial bank is to mobilize 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 bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.  The following types of deposits are usually received by banks:

  1. Current  Deposit:  Also called ‘demand deposit’, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open current accounts with banks. Current accounts do not carry any interest as the amount deposited in these accounts is repayable on demand without any restriction.  The Reserve bank of India prohibits payment of interest on current accounts or on deposits  up to  14 Days or less except where prior sanction has been obtained. Banks usually charge a small amount known as incidental charges on current deposit accounts depending on the number of transaction.
  2. Savings Deposit/Savings Bank Accounts:  Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future  and also  earning interest on  the savings. A  saving account can be opened with or without cheque book facility. There are restrictions on the  withdrawals  from this account. Savings account holders are also allowed to deposit cheques, drafts, dividend warrants, etc.drawn in their  favor  for collection by the bank. To open a savings account, it is necessary for the depositor to be introduced by a person having a current or savings account with the same bank.
  3. Fixed Deposit:  The term ‘Fixed deposit’ means deposit repayable after the expiry of  a specified period. Since it is repayable only after a fixed period of  time, which is to be determined at the time of opening of the account, it is also known as time deposit. Fixed deposits are most useful for a commercial bank. Since they are repayable only after a fixed period,the bank may invest these funds more profitably by lending at higher rates of interest and for relatively longer periods. The rate of interest on fixed deposits depends upon the period of deposits. The longer the period, the higher is the rate of interest offered. The rate of interest to  be allowed on fixed deposits is governed by rules laid down by the Reserve Bank of India.
  4. Recurring Deposits:  Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the depositor is required to deposit a fixed amount of  money every month for a specific period of time. Each  installment  may vary from Rs.100 and above and the period of  account may vary from 12 months to 10 years. After the completion of  the specified period, the customer gets back all his deposits  along with  the cumulative interest accrued on the deposits.
  5. Miscellaneous Deposits:  Banks have introduced several deposit schemes to attract deposits from different types of people, like Home Construction deposit scheme, Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini deposit scheme, etc.

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