TOPIC: BANKING – Survey on various types of Bank accounts, rate

of interest offered.

OBJECTIVE:

To understand the origin and history of Banking, earliest forms of Banking,

Emergence of Modern Day Banking, Significance of Recurring Deposit Account,
significance of Interest in Banking System, Calculation of Interest for Recurring
Deposit accounts, gaining proficiency in solving sums on Recurring Deposit
Accounts.

PRE-ACQUIRED KNOWLEDGE:

Calculation of Simple Interest and Compound Interest on a given sum of money.

What is banking?

Banking is an industry that handles cash, credit, and other financial transactions.
Banks provide a safe place to store extra cash and credit. They offer savings
accounts, certificates of deposit, and checking accounts. Banks use these deposits
to make loans. These loans include home mortgages, business loans, and car loans.

How does it work?

Banks are a safe place to deposit excess cash. The Federal Deposit Insurance
Corporation (FDIC) insures them. Banks also pay savers a small percent of the
deposited amount based on an interest rate. Banks are currently not required to
keep any percentage of each deposit on hand, though the Federal Reserve can
change this. That regulation is called the reserve requirement. They make money by
charging higher interest rates on their loans than they pay for deposits.

TYPES OF BANK ACCOUNTS

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. These are known by different names in different banks, e.g 2-in-1
deposits, Smart Deposits, Power Saving Deposits, Automatic Sweep Deposits etc.
However, these have not been very popular among the public.

1. SAVING BANK DEPOSIT ACCOUNT

2. CURRENT DEPOSIT ACCOUNT
3. FIXED OR TIME DEPOSIT ACCOUNT
4. RECURRING DEPOSIT ACCOUNT
5. FLEXIBLE ACCOUNT
6. JAN-DHAN ACCOUNT
1. Savings Account

As the name suggests, the savings accounts can be opened by an individual or

jointly by two people with an aim to save money. The main benefit of opening a
savings bank account is that the bank pays you interest for opening this type of
account with them.

1. i) Given below are a few features of the Savings account:

 There is no limit to the number of times the account holder can deposit money
in this account but there is a restriction on the number of times money can be
withdrawn from this account.
 The rate of interest that an account holder get varies from 4% to 6% per
annum
 There is no minimum balance that needs to be maintained for this type of an
account
 The savings account holders can get an ATM/Debit/Rupay Card if they want
to Savings bank account is further divided into two types: Basic Savings Bank
Deposit Account (BSBDA) and the other one is Basic Saving Bank Deposit
Accounts Small Scheme(BSBDS).
 The savings bank account is mostly eligible for students, pensioners and
working professionals

Savings Account is the oldest and most common form of savings. The reason behind
people preferring a savings account over any other form of savings is that here the
principal amount is always safe no matter how much interest is earned. It can thus
be said that the convenience of keeping the money in a bank account and earning
interest is also the simplest form of investment.

The Rate of Interest offered by various banks is detailed as Annexure.

1. ii) Calculation of Interest Amount for Savings Account: -

The Reserve Bank of India regulation states that the interest rate on the savings
account is determined daily based on the closing balance. The bank will credit the
savings account with the interest earned on a semi-annual or quarterly basis,
depending on the type of savings account and the bank's policy.

The formula for the same is as follows,

Interest on savings account= Daily balance*Rate of interest* (No. of

days/365)

For instance, the daily amount is ₹ 4 lakhs, and the interest rate on the particular
savings account is 4% per year; the calculation will be as follows:

4 lakhs * 30 * (4/100) / 365 = ₹1315 per month in interest.

All Banks Savings Account Interest Rates May 2023
Savings Account Interest
List of Savings Account Banks Minimum Balance Required (INR)
Rates (Per Annum)

Allahabad Bank 500/1000/2500 2.90%

Andhra Bank 0/100/250/500/1000 3.00%

AU Finance 0 3.50% - 7.00%

Axis Bank 0/10000/25000/100000/ 3.00% - 4.00%

Bank of Baroda 0/5/1000 2.75%

Bank of India 500/5000/10000/20000/100000 2.90%

Bandhan Bank 0/2000/5000/25000/100000 3.00% - 7.15%

Bank of Maharashtra 1000 2.75%

Canara Bank 500/1000 2.90% - 3.20%

Central Bank of India 50 2.75% - 2.90%

Citibank 200000 2.50%

Corporation Bank 0/100/250/500/1000 3.00%

Dena Bank 0 2.75%

Dhanlaxmi Bank 0/5/1000/5000/10000/25000 3.00% - 4.00%

DBS Bank (Digibank) 0 3.25% - 3.75%

Federal Bank 0 Upto 4.00%

HDFC Bank 2500/5000/10000/25000 3.00% - 3.50%

HSBC Bank 2.50%

ICICI Bank 0/1000/2000/2500/5000/10000 3.00% - 3.50%

IDBI Bank 500/2500/5000 3.00% - 3.40%

IDFC Bank 25000 Upto 5.00%

India Post Payments Bank 0 2.75%

Indian Bank 250/500/1000 2.90%

 Savings Account Interest
List of Savings Account Banks Minimum Balance Required (INR)
Rates (Per Annum)

Indian Overseas Bank 500/1000 3.05%

IndusInd Bank 0/10000/25000/2500000 4.00% - 6.00%

Jammu and Kashmir Bank 0/500/1000 2.90%

Jana Small Finance Bank 2500 3.00% - 6.75%

Karnataka Bank 0/500/1000/2000 2.75% - 4.50%

Kotak Bank 0/2000/3000/5000/10000/20000 3.50% - 4.00%

Lakshmi Vilas Bank 1000/3000/5000 3.25% - 3.75%

Oriental Bank of Commerce 0/500/1000 3.00%

Punjab National Bank (PNB) 500/1000/2000/50000 3.00%

Punjab & Sind Bank 500/1000 3.10%

RBL Bank 5000 4.50% - 6.25%

South Indian Bank 0/2500/5000 2.35% - 4.50%

State Bank of India (SBI) 0 2.70%

Syndicate Bank 0/100/500/1000 2.90% - 3.20%

UCO Bank 0/100/250/500/1000/1500 2.50%

Union Bank of India 0/100/250/500/1000 3.00%

United Bank of India 0/50/100/500 3.00%

Utkarsh Small Finance Bank 5000/10000 5.00% - 7.25%

Vijaya Bank 500/1000/2000 2.75%

YES BANK 0 4.00% - 5.50%

2. Current Account

The second type of bank account is the current bank account. These accounts are
not used for the purpose of savings.

Current bank account is opened by businessmen who have a higher number of

regular transactions with the bank. It includes deposits, withdrawals, and contra
transactions. It is also known as Demand Deposit Account.

Current account can be opened in co-operative bank and commercial bank. In

current account, amount can be deposited and withdrawn at any time without giving
any notice. It is also suitable for making payments to creditors by using cheques.

Cheques received from customers can be deposited in this account for collection.
The customers are allowed to withdraw the amount with cheques, and they usually
do not get any interest. Generally, current account holders do not get any interest on
their balance lying in current account with the bank. Current account holder get one
important advantage of overdraft facility.

2.i) Some important pointers related to the current bank account have been
discussed below:

 This type of bank account is mostly opened by businessmen.

 Associations, Institutions, Companies, Religious Institutions and other
business-related works, the current account can be opened.
 There is no fixed number of times that money can either be deposited or
withdrawn from such accounts.
 Internet banking is available
 This type of bank account does not have any fixed maturity.
 Overdraft facility is available for current bank accounts
 There is no interest that is paid on such accounts.
3. Fixed Deposit Account

FD or a fixed deposit account is another type of bank account that can be opened in
any Public or Private sector bank.

3.i) The list of important things that need to be known with respect to the fixed
deposit account has been mentioned below:

 It is a one time deposit and one time take away account.

 Under this type of account, the account holder needs to deposit a fixed
amount of sum (as per their wish) for a fixed time period
 The amount deposited in FD account can only be withdrawn all at once and
not in instalments
 Banks pay interest on the fixed deposit account
 The rate of interest depends upon the amount you deposit and for the time
duration of the FD
 Full repayment of the amount is available before the maturity date of FD

FDs are risk-free investments with high returns. Most banks in India offer an FD
interest rate higher than savings accounts’ interest rates and RDs’ interest rates,
owing to the fixed tenure benefit a bank enjoys in the case of FDs. Banks can hold
big sums for a fixed period and consumers can make higher volatility-free returns,
turning the financial instrument into a win-win for banks and consumers.

A fixed deposit (FD) account allows you to earn a fixed rate of interest for keeping a
certain sum of money locked in for a given time, that is until the FD matures. FDs
range between a maturity period of seven days to 10 years. The rate of interest you
earn on FDs will vary depending on the tenure of the FD. Generally, you cannot
withdraw money from an FD before it matures. Some banks offer a premature
withdrawal facility. But in that case, the interest rate you earn is lower.

The Rate of Interest offered by various banks is detailed as Annexure.

3.ii) Calculation of Interest Amount for Fixed Deposit: -

The interest rate on fixed deposit is usually calculated using two methods - Simple
Interest and Compound Interest.

Simple Interest:

This is a pre-fixed rate of interest at a fixed period of time. It is calculated by

multiplying the rate of interest per annum, the principal amount, and the tenure in
years.

To take an example, if you deposit Rs.1 lakh at an interest rate of 10% p.a. for 5
years, then your interest amount at the time of maturity with a simple interest
calculation will be the following:
SI: P x R x T/100

SI: 1,00,000 x 10 x 5/100 = 50,000

Maturity amount at the end of the 5-year deposit tenure: Rs.1.5 lakh.

Compound Interest

This is the interest that is earned on both the principal amount and the interest
amount. It is calculated by multiplying the interest rate with the principal amount
raised to the number of periods, taken in years, for which the interest is
compounded.

A = P (1+r/n) ^ (n * t)

A = Maturity amount
P = Principal amount
r = rate of interest in decimals
n = number of compounding in a year
t = number of years

For a deposit amount of Rs.10,000 that is kept for a tenure of 3 years at a quarterly
compounding interest rate of 10%, the interest at the time of maturity would be:

A= 10,000 {1 + (0.1/4)} ^ (4 * 3)
A = 10,000 (1 + 0.025) ^ (12)
A = 10,000 (1.025) ^ (12) = Rs. 13,449 (approximately)

Compound Interest (CI) = Maturity Amount - Principal Amount

CI = 13,449 - 10,000 = Rs. 3,449

Maturity amount at the end of the 3-year deposit tenure: Rs.13,449.

4. RECURRING DEPOSIT ACCOUNT:

A recurring deposit, as the name suggests, is a continuing investment. A recurring

deposit is a special kind of term deposit offered by banks which help people with
regular incomes to deposit a fixed amount every month into their recurring deposit
account and earn interest at the rate applicable to fixed deposits. It is similar to
making fixed deposits of a certain amount in monthly installments. This deposit
matures on a
specific date in the future along with all the deposits made every month. Recurring
deposit schemes allow customers an opportunity to build up their savings through
regular monthly deposits of a fixed sum over a fixed period of time.

The minimum period of a recurring deposit is six months and the maximum is ten
years. The recurring deposit can be funded by standing instructions which are the
instructions by the customer to the bank to withdraw a certain sum of money from his
savings/current account and credit to the recurring deposit account.
4.i) The features of the Recurring deposit account have been discussed below:

 Any individual or an Institution can open a recurring deposit account either

separately or jointly
 Periodic or monthly instalments that need to be added can be as low as
Rs.50/- or may vary from bank to bank
 The range of months for which an RD account can be opened varies from 6
months to 120 months
 The interest rate varies depending upon the bank you choose to open an
account with
 Nomination facility is also available for RD accounts
 Passbook is issued for this type of bank account
 Premature withdrawal of the amount is permitted, provided a sum of amount
is deducted as penalty

4.ii) Calculation of Interest Amount for Recurring Deposit: -

There are three variables that go into the calculation of the RD maturity amount. An
RD account calculator assigns these variables to a standard formula to arrive at the
exact maturity amount.

The formula for RD maturity is - A = P*(1+R/N)^(Nt)

A = Maturity amount
P = RD instalment each month
r = rate of interest in %
n = compounded frequency (in quarters)
t = tenure

For example, an individual starts an RD account for an investment of Rs. 5000 per
month for a tenure of 1 year, i.e. 4 quarters. The interest accrued on this account is
8%. The final maturity amount on this particular deposit is calculated with the
following formula-

A = P*(1+R/N) ^ (Nt)
= 5000*(1+.0825/4)^(4*12/12) = 5425.44
= 5000*(1+.0825/4)^(4*11/12) = 5388.64…………
= 5000*(1+.0825/4)^(4*1/12) = 5034.14

By taking the sum of series, total maturity value, i.e. A = Rs 62,730.85

5. Flexible Account: -

A flexi deposit is one in which you have an inter-linked Savings and Fixed Deposit
account. In this case also, during times of deficit in your Savings Account, the money
is automatically transferred from your Fixed Deposit account.

However, unlike in a sweep-in facility, the excess money in your Savings Account
does not automatically get transferred to your Fixed Deposit account even if there’s a
deficit. You have to manually deposit money in your Fixed Deposit account to fill the
shortage of funds.

If you opt for a flexi deposit, you run the risk of earning lower interest rates on your
Fixed Deposit account when there is a shortage of funds. Also, the rate of interest is
slightly lower when compared to a Fixed Deposit with the sweep-in facility.

Key points about flexi deposit

 You need an existing Savings Account with the bank

 You need to connect your Savings Account with the Fixed Deposit account
 When there is surplus amount in your Savings Account, you need to
personally visit the bank and open new Fixed Deposits with the excess
amount.
 The Fixed Deposits will not be created automatically even if there’s surplus
cash in your Savings Account.
 In case you liquidate your flexi deposit before maturity, some banks may
charge a penalty of 1%.

6. JAN-DHAN ACCOUNT:

Pradhan Mantri Jan Dhan Yojana is a financial inclusion program of the Government
of India open to Indian citizens (minors of age 10 and older can also open an
account with a guardian to manage it), that aims to expand affordable access to
financial services such as bank accounts, remittances, credit, insurance and
pensions. This financial inclusion campaign was launched by the Prime Minister of
India Narendra Modi on 28 August 2014. He had announced this scheme on his first
Independence Day speech on 15 August 2014. Run by Department of Financial
Services, Ministry of
Finance, under this scheme 15 million bank accounts were opened on inauguration
day.

Survey Report:-

I. Bank accounts share across India in 2020, by type and income group
According to a survey conducted on banking systems in India in 2020, 86 percent of
the households stated that they had Public Sector Undertaking bank accounts.
However, 22 percent of the households stated that they had both private and public
bank accounts.

Importance of Bank Accounts

Bank accounts are opened to manage the finances of individuals, companies,

institutions, and so on. Below are the reasons why a bank account must be opened:
  Simplicity of transactions as account holders can easily withdraw money and
make payments through their respective accounts.
 Bank accounts offer a safe treasury of hard-earned money. Even if the bank
shuts down, account holders get their money back
 Most banking organizations offer the account holders free or low cost services
 It is an easy and reasonable way to grow money. Mostly every bank offers an
interest rate wherein account holders can earn interest if they deposit money
in the savings bank account.
 Bank accounts offer easy access to credits. Having a bank account opened is
beneficial as banks provide easy credit access to its customers for all kinds of
loans as well.

CONCLUSION

“The habit of saving is itself an education;

if fosters every virtue, teaches self-denial,
cultivates the sense of order, trains to forethought,
and so broadens the mind.” – T.T. Munger

Saving money gives you a way out of the uncertainties of life and provides you with
an opportunity to enjoy a quality life. Putting aside a sum of money in a systematic
manner can help you steer out of many hurdles and obstacles in life.
Fixed Deposit Interest Rates of Small Finance Banks
Interest Rates (% p.a.)

Bank Name
Highest 1-year 3-year 5-year
slab tenure tenure tenure

AU Small Finance Bank 8.00 6.75 8.00 7.20

Capital Small Finance Bank Limited 7.60 7.15 7.15 7.10

Equitas Small Finance Bank 8.50 8.20 8.00 7.25

ESAF Small Finance Bank 8.50 6.00 6.75 6.25

Fincare Small Finance Bank 8.41 7.50 8.00 8.00

Jana Small Finance Bank 8.15 7.25 7.35 6.00

North East Small Finance Bank 7.25 6.50 7.25 6.25

Shivalik Small Finance Bank

8.00 7.50 8.00 7.00
Limited

Suryoday Small Finance Bank 9.10 6.85 7.25 9.10

Ujjivan Small Finance Bank 8.25 6.50 7.20 7.20

Unity Small Finance Bank 9.00 7.35 7.65 7.65

Utkarsh Small Finance Bank 8.25 7.75 8.25 7.50

Fixed deposit rates as of 23 May 2023

FD Interest Rates of Private Sector Banks
Interest Rates (% p.a.)

Bank Name
Highest 1-year 3-year 5-year
slab tenure tenure  tenure

Axis Bank 7.10 6.75 7.00 7.00

Bandhan Bank 8.00 7.25 7.25 5.85

City Union Bank 7.75 6.75 7.25 6.90

CSB Bank 7.50 5.00 5.75 5.75

DBS Bank 7.50 6.25 6.50 6.50

DCB Bank 8.00 7.25 8.00 7.75

Dhanlaxmi Bank 7.25 6.75 6.50 6.60

Federal Bank 7.25 6.80 6.60 6.60

HDFC Bank 7.10 6.60 7.00 7.00

ICICI Bank 7.10 6.70 7.00 7.00

IDBI Bank 7.15 6.75 6.50 6.50

IDFC First Bank 7.75 6.75 7.75 7.00

IndusInd Bank 7.75 7.50 7.75 7.25

Jammu & Kashmir Bank 7.10 7.10 6.50 6.50

Karnataka Bank 7.30 7.00 6.50 6.50

 Karur Vysya Bank 7.50 7.00 7.00 6.25

Kotak Mahindra Bank 7.20 7.10 6.50 6.20

Nainital Bank 7.05 6.70 6.25 5.75

RBL Bank 7.80 7.00 7.00 7.00

SBM Bank India 7.80 7.05 7.65 7.65

South Indian Bank 7.40 6.60 6.50 6.00

Tamilnad Mercantile Bank 8.00 7.25 6.50 6.50

Yes Bank 7.75 7.50 7.00 7.00

FD Rates for Public Sector Banks

Interest Rates (% p.a.)

Bank Name
Highes 1-year 3-year 5-year
t slab tenure  tenure tenure

Bank of Baroda 7.25 6.75 7.05 6.50

Bank of India 7.15 6.00 6.50 6.00

Bank of Maharashtra 7.00 6.35 6.00 5.75

Canara Bank 7.25 7.00 6.80 6.70

Central Bank of India 7.10 6.75 6.25 6.25

Indian Bank 7.25 6.10 6.25 6.25

 Indian Overseas Bank 7.25 6.50 6.50 6.50

Punjab & Sind Bank 7.35 6.40 6.25 6.25

Punjab National Bank 7.25 6.80 7.00 6.50

State Bank of India 7.10 6.80 6.50 6.50

UCO Bank 7.20 6.75 6.30 6.20

Union Bank of India 7.00 6.30 6.50 6.70

Fixed deposit rates as of 23 May 2023