What is a Bank?
Banking means accepting deposits from the public for the purpose of lending and investment, repayable on demand or otherwise and withdrawable by means of a cheque or any other instrument.
- A Bank is a financial organisation where people deposit their money for safety.
- A Bank pays interest on deposits taking the nature of deposits.
- A Bank lends money to people for certain purposes, taking into account their capacity to pay back the borrowed money along with the interest.
The Banks provide the following critical financial services to house hold and business enterprises. By bringing these financially excluded people into Banking fold enables them to avail these services.
- Safe savings and range of risk/return trade of services. It mobilizes savings into formal financial system.
- Additional means beyond privately accumulated savings and help by way of credit and insurance to absorb shocks of unforeseen circumstances.
- It reduces dependence on informal financial sources such as pawn shops, money lenders or informal groups relating to savings and credit associations by the poor low income vulnerable group of society.
- Facilitate payment between different parties and make them safer to a cash transaction.
Importance of Savings
Savings are necessary for our nation which is struggling to remove its poverty and become prosperous. The governments are undertaking series of measures to increase production in agriculture, industries and other sectors of the economy and also to raise resources. All that requires investments. Investments come only through savings and therefore savings are vital.
Savings are also vital for every person as it will enable everyone to learn value of the savings and also to help the efforts of the nation to bring prosperity to the country as a whole.
Savings are vital for everyone to become happy and free from economic fear. When savings are put in the Bank, it earns interest and brings safety of funds to the depositor. Re 1 saved is more valuable than Rs 10 spent.
How to open an account in a Bank?
Anyone can open a bank account by visiting a nearest bank branch in their locality. After filling up an account opening form, the branch would like to know your identity (who you are) and address proof known as KNOW YOUR CUSTOMER (KYC).
Under KYC, you need to give a copy of one or more of the following documents to a bank in addition to your photograph:
- Photo Identity Card
- Ration Card
- Driving License
- PAN Card
- Telephone bill
- Electricity bill
- Passport Copy
- Aadhaar letter issued by Unique Identification Authority of India (UIDAI)
- NREGA Job Card
In the absence of PAN number, a customer should give a declaration in the prescribed format.
To deposit money in a bank for the first time, one needs to open an ACCOUNT with a bank. If a person goes to a bank for the first time, the bank would like to know who a person is and where he resides.
What is a Savings Bank Accounts?
- A Savings Bank Account is a common accoun generally people open with a bank to keep their savings.
- This type of account is not suitable for the business people.
- Banks permit limited withdrawals from the SB account per month.
- Banks are paying interest on daily balances in SB Account and credit the amount once in six months.
Who can open an account?
- An individual in his/her own name.
- Individuals in their joint names with suitable repayment instructions.
- Minor represented by parent/guardian.
- A student above the age of 10 can also open a savings bank account.
- Clubs, societies, associations, trusts etc. Self help group.
What is Basic Savings Bank Deposit Accounts (No Frill Accounts):
Banks offer Basic Savings Bank Deposit Accounts (BSBDA) with the following minimum common facilities to all their customers:
- The account should be considered a normal banking service available to all.
- This account shall not require any minimum balance.
- The account will provide an ATM card or ATM-cum-debit card.
- Services will include deposit and withdrawal of cash at bank branches as well as ATMs; receipt/ credit of money through electronic payment channels or by means of deposit/ collection of cheques drawn by central/ state government agencies and departments; and
- While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawalssic Savings Bank Deposit Accounts (BSBDA) with the following minimum common facilities.
- Total credits in such accounts should not exceed rupees one lakh in a year.
- Maximum balance in the account should not exceed rupees fifty thousand at any time.
- The total debits by way of cash withdrawal and transfers will not exceed rupees ten thousand in a month.
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What is a Fixed Deposit (FD)/Time Deposit?
- Time deposits are deposits accepted by banks for a specified period of time.
- The minimum period for which fixed deposits can be accepted is 15 days. The banks generally do not accept deposits for periods longer than 10 years.
- Banks pay interest on fixed deposits based on the period of deposits.
- Interest on fixed deposits are paid monthly/quarterly/half yearly or at the end of the maturity period as requested by the customer.
- Banks have full discretion to fix their interest rates on deposits and these rates vary from time to time depending on market conditions.
- Changes made in interest rates from time to time do not alter the interest paid on the existing deposits.
- Banks are allowed to levy a penalty for premature encashment of deposits at their discretion.
What is a Recurring Deposit?
- Under a Recurring Bank Deposit, a specific amount is deposited in a bank on monthly basis for a fixed rate of return.
- The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor.
- Recurring Bank Account provides the element of compulsion to save at high rates of interest applicable to term deposits along with liquidity to access those savings anytime.
- There is great flexibility in the period of deposit with maturity ranging from 6 to 120 months.
- The minimum monthly deposit varies from bank to bank. In most of the public sector banks, one can start a Recurring Deposit Account with a monthly installment of Rs 100/-.
What is a current account?
- Anyone can open a current account. Unlike savings bank account, no limits are fixed by banks on the number of transactions permitted in the account.
- Banks generally insist on a higher minimum balance to be maintained in current account. Considering the large number of transactions in the account and uncertain nature of balances maintained overnight, banks generally levy certain service charges for opening a current account.
- Banks do not pay any interest on the balances maintained in current accounts.
Opening of Bank Accounts in the names of minors:
a) A savings /fixed / recurring bank deposit account can be opened by a minor of any age through his/her natural or legally appointed guardian.
b) Minors above the age of 10 years are allowed to open and operate savings bank accounts independently, if they so desire.
c) Limits in terms of age and amount up to which minors are allowed to operate the deposit accounts independently are as fixed by Banks, keeping in view their risk management systems.
d) The minimum documents required for opening of accounts by minors are as prescribed by Banks.
e) On attaining majority, the erstwhile minor should confirm the balance in his/her account and if the account is operated by the natural guardian / legal guardian, fresh operating instructions and specimen signature of erstwhile minor should be lodged with the Bank for all.
f) Banks are free to offer additional banking facilities like Internet Banking, ATM/ Debit Card, Cheque Book facility etc.
g) Minor Accounts are not allowed to be overdrawn and that these always remain in credit.
Currency-related services by banks
All the bank branches should provide you the following services related to currency / coins:
- Issue fresh / good quality currency notes and coins.
- Accept notes and coins in transactions like deposits and withdrawals or in exchange.
- Accept small coins.
- Exchange soiled / dirty notes.
- Exchange cut notes in two pieces.
Points to remember while operating through ATM/ Debit/ Credit Cards/ Internet Banking
- Do not share your PIN / User ID and Password (for Internet Banking) with anyone or write it down anywhere
- Do not speak out your PIN loudly or enter it when others are looking over your shoulder
- Do not let anyone enter the PIN on your behalf, always enter the PIN yourself.
Sukanya Samriddhi Account:
How to Open the Sukanya Samriddhi Account?
Guardian to open the account: The account can be opened only by parents or legal guardians for up to two girl children. In case of twins or triplets, an exemption will be made on production of a certificate from authorised medical institutions.
Age Eligibility: A Sukanya Samriddhi account can be opened for a girl child till she attains the age of 10. The scheme started from 2 December, 2014. An initial grace period of one year has been announced for convenience. A girl child, who is born between 2 December, 2003 and 1 December, 2004, can open account by 1 December, 2015.
Account in the name of the beneficiary: Sukanya Samriddhi Scheme can only be opened in the name of the girl child. The depositor (guardian) will be an individual, who deposits amount in the account on behalf of the minor girl child.
One Girl One Account: Only one account can be opened per girl child.
Where to open Account: Sukanya Samriddhi account can be opened in Post Offices or authorised Banks.
More Information on Sukanya Samriddhi Account
Account Transferability: The account can be opened with an amount of Rs. 1000. It can be transferred from the original location to anywhere in India as the girl child relocates.
Minimum Contribution: A minimum contribution of Rs. 1000 per account has to be deposited per year. A maximum of Rs.1, 50,000 per account can be deposited. There is no limit in the number of deposits in a financial year. The money can be deposited through cash, cheque or draft.
Penalty: A penalty of Rs.50 will be imposed if the account is not credited with the minimum amount.
Rate of Interest: The scheme is offering an interest rate of 9.1% per year. However, it will be revised in April every year and the change will be communicated subsequently. The interest will be compounded yearly and directly credited to the account.
Term Period: The guardian is expected to deposit amount in the account only till the completion of 14 years. No deposits after that is required till the maturity of the account.
Withdrawal: A premature withdrawal (at the end of the previous financial year) of 50% of the accumulated amount is allowed after the girl child turns 18.
Closure of Account: The account can be closed only after the child turns 21. If the money is not withdrawn even after that, it will continue to earn the interest.
Taxation: As per Section 80C of Income Tax Act, the investment (up to Rs.1.5 lakhs) under the scheme, all the payments including the interest payment and the total maturity amount will be fully exempted from taxation.
What Are the Documents Required for Opening an Account?
Birth Certificate of the girl child.
Address and photo identity proof (PAN Card, Voter ID, Aadhar Card) of the guardian.