Hello everyone, This is Gyati Gupta, fresher in CA Final.
This is my first article on this site ,the idea to write a quality article cropped up in my mind quiet a few weeks ago but I was confused about the topic I should choose. Though most of you would be familiar with the following content as we all are in touch with these terms, but still my intent is to make unaware aware, and ensure aware ones to revise what they know.
Traditionally banks in India have four types of deposit accounts, namely Current Accounts, Saving Banking Accounts, Recurring Deposits and, Fixed Deposits. However, in recent years, due to ever increasing competition, some banks have introduced new products, which combine the features of above two or more types of deposit accounts.
1. SAVING ACCOUNT:
- These deposits accounts are one of the most popular deposits for individual accounts.
- These accounts not only provide cheque facility but also have lot of flexibility for deposits and withdrawal of funds from the account.
- Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these.
However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account.
Till 24/10/2011, the interest on Saving Bank Accounts was regulared by RBI and it was fixed at 4.00% on daily balance basis.
However, wef 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI.
2. CURRENT ACCOUNT:
- Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings.
-These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day.
-Most of the current account are opened in the names of firm / company accounts.
- Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties.
-No interest is paid by banks on these accounts. On the other hand, banks charges certain service charges, on such accounts.
3. RECURRING DEPOSITS ACCOUNT
-These are popularly known as RD accounts and are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month.
- Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits. These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans or save for the future.
- Under these type of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs,100/- p.m.). Any default in payment within the month attracts a small penalty.
- However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon.
- Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months. A Pass book is usually issued wherein the person can get the entries for all the deposits made by him / her and the interest earned.
- In case instalment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments. Premature withdrawal of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals). These accounts can be opened in single or joint names. Nomination facility is also available.
-The RD interest rates paid by banks in India are usually the same as payable on Fixed Deposits, except when specific rates on FDs are paid for particular number of days e.g. 500 days, 555 days, 1111 days etc i.e. these are not ending in a quarter.
4. FIXED DEPOSITS ACCOUNT:
- All Banks in India (including SBI, PNB, BoB, BoI, Canara Bank, ICICI Bank, Yes Bank etc.) offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years. These are also popularly known as FD accounts. However, in some other countries these are known as "Term Deposits" or even called "Bond". The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors are supposed to continue such Fixed Deposits for the length of time for which the depositor decides to keep the money with the bank.
- However, in case of need, the depositor can ask for closing (or breaking) the fixed deposit prematurely by paying paying a penalty (usually of 1%, but some banks either charge less or no penalty).
- Some banks introduced variable interest fixed deposits. The rate of interest on such deposits keeps on varying with the prevalent market rates i.e. it will go up if market interest rates goes and it will come down if the market rates fall. However, such type of fixed deposits have not been popular till date.
-The rate of interest for Fixed Deposits differs from bank to bank (unlike earlier when the same were regulated by RBI and all banks used to have the same interest rate structure.
-Usually a bank FD is paid in lump sum on the date of maturity.
Besides above four traditional accounts, there are some other accounts with same features but a few different features.
NO FRILL ACCOUNT:
- In simple words it: If a company makes its service/product cheaper by removing the extra features, that is no frill. Eg. Mobile phone postpaid package without unlimited ringtones or free night talk. Dish TV package without 100 sports channels.
- For our discussion purpose: No frill account is a type of bank account, with low / Zero balance requirement with extra-features removed.
- RBI came up with this No-frill concept, because poor people cannot open regular bank accounting having requirements like Rs.5000/- minimum balance etc.So there are no frill accounts for them. So that poor people can open bank accounts and take loans, that’ll save them from the 36% interest rate charged by the evil money lenders.
JOINT ACCOUNT:
A joint account is an account that belongs to more than one person. Joint accounts are often set up by couples that are living together or people who have finances that are closely linked. Both current and savings accounts can be opened jointly.
- Joint accounts can be set up so each individual account holder can use the account or so that all account holders have to authorise transactions.
- With a joint account, you are liable for any debts run up by other account holders.
STUDENT ACCOUNT:
Most banks provide accounts specifically for students in higher education. These are current accounts that have been designed with student finance in mind. They usually offer interest-free overdrafts up to a certain limit to help students cope with the debts that often accumulate while studying
BUSINESS ACCOUNT:
Most people who run businesses have a business account so their business and personal money are kept separate.They are more or less same as Current Accounts.
SHARIAH ACCOUNT:
A growing number of banks and building societies offer current and savings accounts that are designed and run in accordance with Shariah law, which is Islamic law. Under Shariah law, interest is prohibited so Shariah compliant accounts provide a return on your money that is not interest.
Besides these , there are certain accounts, which gained momentum in the past few years .These accounts can never be ignored while we talk about the categories of accounts.:
The most important of all, the lifeline of Stock Market is the DEMAT Account.
- In India, shares and securities are held electronically in a Dematerialized (or "Demat") (account, instead of the investor taking physical possession of certificates.
- A Dematerialized account is opened by the investor while registering with an(or sub-broker).
- The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transactingshares
- Access to the Dematerialized account requires an internet passwords and a transaction password.
- Benefit to the company
The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors
- Benefit to the investor
The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.
- Benefits to brokers
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading andprofitability. It increases confidence in their investors.
- Fees involoved
There are four major charges usually levied on a demat account: account opening fee, annual maintenance fee, custodian fee and transaction fee.
- Account Opening fee
Private banks, such as HDFC Bank and AXIS Bank, do not have one. However, players such as Kotak Securities,[1] Sushil Finance, ICICI Bank, Globe Capital, Karvy Consultants and Bajaj Capital Limited do impose an opening fee. State Bank of India does not charge any account opening charge while other maintenance and transaction charges apply. Most players levy this when re-opening a demat account. However, the Stock Holding Corporation offers a lifetime account opening fee, which allows the investor to hold on to his/her demat account for a long period. The fee is also refundable.
- Annual maintenance fee
This is also known as folio maintenance charges, and is generally levied in advance. It is charged on annual or monthly basis.
- Custodian fee
This fee is charged monthly and depends on the number of securities (i.e. ISINs) held in the account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs will not charge a custody fee for an ISIN on which the companies have paid one-time custody charges to the depository.
-Transaction fee
The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the fee to the transaction value, which is subject to a minimum amount.
The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities, while others charge for both. Some DPs also charge the investor even if the instruction to buy/sell fails or is rejected. In addition, service tax is also charged by the DPs.
In addition to the other fees, the DP also charges a fee for converting the shares from the physical to the electronic form or vice-versa. This fee varies for both demat (physical-to-electronic) and remat (electronic-to-physical) requests. For demat transactions, some DPs charge a flat fee per request in addition to the variable fee per certificate, while others charge only the variable fee.
- However, having Demat Account invites only one disadvantage that there is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges etc.
- After liquidating the holdings, many Indian investors don't close their dp account. They are unaware that DPs charge even on accounts with nil holdings.
NOSTRO VOSTRO ACCOUNTS
You should refer the given link for better understanding of this concept. Personally, ifeel that the link will be really helpful in grasping the entire concept:
http://s3.amazonaws.com/caclubindia/cdn/forum/files/302370_932607_binder1.pdf
ESCROW ACCOUNT
- An escrow account is a temporary pass through account held by a third party during the process of a transaction between two parties.
- This is a temporary account as it operates until the completion of a transaction process, which is implemented after all the conditions between the buyer and the seller are settled.
- Escrow Accounts are legally permitted in India and for that you should be either an Advocate or a C.A. or a person of a high repute or a banker or a person on both the parties to the dsipute or the transactions are ready to keep the money in Escrow with that person.For this, no certificate from any person, authority or RBI is required.
GILT ACCOUNT
- Accounts maintained by investors with the Primary dealers for holding their Government securities and Treasury bills in the demat form are know as Gilt accounts.
- The salient features of Gilt accounts are: It is like a bank, which debits or credits the holders account on withdrawal or deposit of the money. Similarly in a gilt account the holder's account is debited or credited on the sale or purchase of the securities.
- The term "gilt account" is also a term used by the RBI to refer to a constituent account maintained by a custodian bank for maintenance and servicing of dematerialized government securities owned by a retail customer.
Apart from above there is a series of categories of Accounts for NRI’s
If a person is NRI or PIO, she/he can, without the permission from the Reserve Bank, open, hold and maintain the different types of accounts given below with an Authorised Dealer in India, i.e. a bank authorised to deal in foreign exchange. NRO Savings accounts can also be maintained with the Post Offices in India. However, individuals/ entities of Bangladesh and Pakistan require prior approval of the Reserve Bank.
Types of accounts which can be maintained by an NRI / PIO in India
A. Non-Resident Ordinary Rupee Account (NRO Account)
NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.
- Account should be denominated in Indian Rupees.
- Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.
- Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.
-NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
-The accounts may be held jointly with residents and / or with non-resident Indian.
B. Non-Resident (External) Rupee Account (NRE Account)
- NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.
- NRIs as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000 may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘ basis. The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.
- Account will be maintained in Indian Rupees.
- Balances held in the NRE account are freely repatriable.
- Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.
- Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers' cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.
-Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.
-Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either to the depositors or third parties.
C. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account
- FCNR (B) accounts are only in the form of term deposits of 1 to 5 years
- All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also.
- Account can be in any freely convertible currency.
- Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties.
-The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India.
Opening of accounts by individuals/entities of Bangladesh / Pakistan nationality requires prior approval of the Reserve Bank. All such requests may be referred to the Chief General Manager-in-Charge, Foreign Exchange Department, Foreign Investment Division, Reserve Bank of India, Central Office, Mumbai - 400 001.
Foreign Currency Account
- A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.
- A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.
Resident Foreign Currency Account
-Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts.
- Proceeds of assets held outside India at the time of return can be credited to RFC account.
- The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.
- RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.
-RFC accounts are permitted to be held jointly with the resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.
With this I conclude my article. I hope u all liked it. I knew it was quiet lengthy and I could remove some additional lines but I observed that they all could add to our knowledge.
At the end, I would like to share this credit with many websites like Wikipedia,Moneymatterstome etc ,which provided me the base for this research.I don’t feel hesitate in confessing that I had picked up some lines from these sites and fitted them unalloyed in this article just to keep the things simpler.
With Regards
Gyati Gupta
CAclubindia
