Different Types of Deposit Products offered by Banks

 

A bank is a mediator or a financial institution. It performs many functions. Its functions are very important. Its functions are regarded to be very sensitive because it does the business of currency. It accepts the deposits and provides the loan subject to some terms and conditions against the security of the movable and immovable property and assets of the borrower and the third person.

Types of Deposits

At the outset, it is necessary to know what a deposit is. Commercial Bank Act 2031 (1974), defines 'deposits' as the amounts deposited in a current, savings or fixed accounts of a bank or financial institution. People in general, the businessmen, the industrialists and other individuals deposit money in a bank. actually, such money is the main sources of capital for the commercial bank. bank, flows such amount as loan and invest in different sectors to earn profit. usually, a bank accepts three types of deposits. they are current, saving and fixed deposits. But in other countries, w find more than three deposits. In Nepal, banks grant permission to their customers to open three types of accounts under various terms and conditions. This classification is made on different theoretical and financial basis. Therefore, the deposits of bank are classified on the following basis:

1. Demand Deposits
2. Saving Deposit
3. Fixed Deposit

Demand Deposit

The deposit in which an amount is immediately paid at the time of any account holder's demand is called demand deposit. In another words, we can say this type of demand deposit as current account. "Current Account" means an accounts of amounts deposited in a bank, which may be withdrawn at any time on demand. Its transaction is continual and such deposit cannot be invested in productive sector, so such type of account remains as stock in the bank. Though the bank cannot gain profit by investing it in new sector after taking from the customers, this facility is given to the customers. Therefore, the bank does not give interest on this account. From such deposit, the merchants and traders are benefited more than individuals. the bank should pay as much times as the cheque is sent until there is no deposit in his account. The Bank cannot impose any conditions and restrictions in demand deposit. An institution or an individual, who usually needs money daily, proceeds their acts and transaction through such deposit. the current account is very important for the customers of bank.

In any institution, which carries out cash transaction, there is possibility of corruption; misuses and fraud. There should be a provision of separate employees for the recovery of the cash and for the payment of the cash. The current account is necessary to collect and buy the bills, to use the facility of over draft, letter of credit, remittance, etc. current deposit on the other hand, saves time and labour and on the other hand, the bank keeps the accurate account of the account holders, so it is a great facility for the customers. Therefore, it has a great importance. The current deposit has its own characteristics. they are described below:

Features of current deposit

• Under this deposit, the customer can get the payment until there is balance in his account as many times as cheque are sent  to the bank within the banking time in a day. In addition to it, he can also deposit account
• A bank should keep enough balance because the bank should pay a large amount at the time of account holders' demand.
• No interest is given on demand deposit.
• There can be a special contract between the bank and the customer, under which a customer may get such facility in excess of balance in his account and the bank can give him payment.
• If the customer has a less amount in his account than required by banking rule, the bank can take some certain amount from the customer's account for handling charge.

Saving Deposit

The bank can collect capital through the saving deposit as well. This deposit is also important and its necessity and scope is not negligible. According to the Commercial Bank Act 2031 (1974), Saving Account means "an account of amounts maintained in a bank for saving purposes". This account is suitable and appropriate for the people of middle class, farmers and labours who have low income, officials and small businessmen. This saving deposit bears the features of both of the current and fixed deposits. Generally, most accounts are opened saving deposit in bank.

Therefore, this deposit is popular in people in general.According to internal rules of banks, some banks demand a small account and some demand a great deal of money to open saving account account. different banks have made different rules. some banks have made two lakh, some have three, and some have five lakh or no limitation for some banks. so, there is divergence as to how much amount of money can be withdrawn. Banks give some interest rate on it. The features of this deposit are described below:

Features of Savings Deposits

• Usually, the interest is given every 3 month in this deposit.
• Generally, the bank provide 3 to 5% interest in this deposit but this percent may change.
• f the customers want to withdraw more money from the bank which is not allowed by it, but if he gives pre-information to the banks, in this situation he can withdraw more money.
• If the bank goes into liquidation more priority is given to the saving deposit than current and fixed deposit in this payment of liability.
• In the absence of pre-information, the bank many refuse to give the payment. If it does not refuse, it may take some charge as fine to give the deposit.
• The saving account holder does not have the same facility of withdrawn money as the current account holders.
• Generally, bank can submit only one cheque in a day or two or three in a week.
• The bank fixes the minimum and maximum amount withdraw able through cheque in this deposit.

Fixed Deposit

Under the Commercial Bank Act 2013 (1974), "Fixed Account" means an account of amounts deposited in a bank for certain period of time. The customers opening such account deposit their money in this account, for a fixed period. In another words, it is called term deposit because this amount is deposited for a certain period.

Usually, only the person or institution who wants to gain more interest opens such type of  account. The period of time can be 3 months, 6 months, 9 months, 1 year, or above. more interest rate is payable in this deposit than other deposits. both parties the bank and the customer can take benefit from this deposit. the bank invests this money on the productive sector and gains profit and the customer too be made his financial transaction stronger by getting more interest from this deposit. the amount collected in the saving deposit must be returned to the customer after date is expired. The amount cannot be withdrawn before the fixed time. these features of deposit are described as follows:

Features of Fixed Deposit

• The amount cannot be withdrawn by check in this deposit like other current and saving deposits.
• usually, the interest is awarded every 3 month in this deposit.
• The customer can renew the fixed deposit after the expiry of the fixed time.
• In fixed period deposit, the interest is provided minimum 3.50% to maximum 13.50% according to the duration of time.
• Though the fixed deposit can be opened in a bank for a period of more than 5 years, no more interest than 13.50% can be gained on it.
• The bank can invest the money of the fixed deposit in another sector.
• The fixed deposit opened for a certain time, such duration of time can be from 7 days to 5 years or more..
• The rate of interest in the fixed deposit is higher than that of other deposits.
• The principal amount with interest must be returned to the customer after expiry of fixed time.
• The customer cannot deposit more money again in this deposit, before the fixed time.
• Both the bank and the customer can be benefited from this deposit.

But in recent years, a new type of savings account has been introduced in several countries, which is known as "Recurring Deposit Account". under this deposit, a customer is required to deposit a fixed sum, generally a multiple of Rs. 1000 every month for a specified period. The rate  of interest on this account is almost equal to that of fixed deposit, 6,7  % compound interest payable from periods ranging from 1 to 10 years. generally, in the case of premature payments, the bank pays 1% below the rate applicable to recurring deposit of the period for which the deposit has actually been made. But if it is closed within 3 months of opening the account, no interest is payable.