What is a Bank Account?
A bank account is a financial account with a banking company, recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank.
It is an arrangement whereby you may place your deposit under the safekeeping of your bank or deposit taking financial institutions. The bank as financial intermediary channelize these funds in productive resources and banks may pay remuneration out of profit they earn on your deposits. Bank accounts can help you manage your everyday money.
Types of Bank Accounts
Banking institutions may offer a broad range of bank account types. By learning different account categories, you can work out the choices that suit your personal needs.
Term/Fixed Deposit Account
The account which is opened for a particular fixed period (time) by depositing particular amount (money) is known as Fixed (Term) Deposit Account. The term ‘fixed deposit’ means that the deposit is fixed and is repayable only after a specific period is over.
Under fixed deposit account, money is deposited for a fixed period say six months, one year, five years or even ten years. The money deposited in this account cannot be withdrawn before the expiry of period. The rate of interest paid for fixed deposit vary (changes) according to amount, period and from bank to bank.
Features of Fixed Deposit Account
The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money).
- The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
- The period of fixed deposits range between 15 days to 10 years.
- A high interest rate is paid on fixed deposits. The rate of interest may vary as per amount, period and from bank to bank.
- Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed account prior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) from the interest payable as on that date.
- The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period
Advantages of Fixed Deposit Account
- Fixed deposit encourages savings habit for a longer period of time.
- Fixed deposit account enables the depositor to earn a high interest rate.
- The depositor can get loan facility from the bank.
- On maturity the amount can be used to make purchases of assets.
- The bank can get the funds for a longer period of time.
- The bank can lend such funds for short term loans to persons.
- Fixed deposits indirectly boost economic development of the country.
- The bank can also invest such funds in profitable areas.