Personal Finance starts with something very basic, a bank account. Considering that all kinds of people have one, surely there must be various types. A little disclaimer early on – even though the basic features would remain the same, each bank offers different options, incentives & features on these accounts. Hence it is wise and very much advisable to compare banks to find one that suits you.
As an Indian citizen living in India, these are the primary types of bank accounts you need to know:
- Savings account: This is the most basic type of account, one that you would represent with a piggybank picture. You would be required to maintain a nominal minimum balance, with no cap on your savings amount (although the interest is usually taxable after a certain limit). Interest rates are on the lower end of the spectrum. The number of transactions, though limited, shouldn’t be too restrictive for an average individual. There are different types of savings account available for minors, women, senior citizens etc. Joint ownership is also possible. A simple and honestly, lazy way to earn interest on your money is with a savings account.
- Current account: This is for the people who keep doing transactions with their money. Usually owned by entrepreneurs, businessmen, firms & probably even shopaholics, this account is built to handle heavy cashflows (perform unlimited transactions). Considering the additional feature, the bank would ask you to have a higher minimum balance than a savings account. You do not earn interest in this account, as it isn’t meant to be used for storing your money, but rather just for transferring it.
- Salary account: These are opened by large companies to credit employee salaries. The firms choose the features of the account and deposit your paycheck according to payment cycle. Any further details completely depend upon the company & the bank. Usually, the banks try to make it lucrative for the employees to use their salary account like a savings account.
- Fixed Deposit account (FD): Picture this – you take a bag of money; you give it to someone and you tell them that you would collect the money with interest a year later. If you collect the money before time, you would probably have to pay a penalty. This is the concept of an FD. You deposit a certain amount for an agreed upon time period, for a certain interest. You then collect the principal with interest once that period ends, i.e., on maturity.
- Recurring Deposit account (RD):This is where you deposit a certain amount of money over and over between regular intervals, and earn interest. When the full-term ends, you get your total amount, which includes the principal and the interest. Basically, this is very similar to an FD, except for the fact that you do not need to make a single hefty deposit but could split up your payments. It is sometimes possible to even “auto-sweep” money from your savings account to an RD account.
While there are other fancier accounts out there such as NRI accounts, merchant accounts, overdraft accounts, I believe that these five basic types are the ones that are needed for people my age and, in my position.
