Types of Bank Accounts

Types of Bank Accounts

Olivia Reeve
By Olivia Reeve
contributor

October 29, 2021


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  • A bank account is merely a tool for quantitative accounting of a client’s rights or claims against a credit institution under a service agreement. Each sort of deposit has its own characteristics, like fixed deposits, in which banks also provide better interest rates.

    According to RBI’s rules, bank accounts refer to accounting accounts that are opened on the balance sheet of credit institutions to execute an agreement signed with a client. Most often, it is created by a banking institution and is directly utilized to make safe funds transfers and ensure money safety. 

    The funds that are transferred to the banks is its owner – the person, according to whose application this account was created in a banking organization. 

    Accounts for Ordinary Citizens

    If the initiator of the bank account is a citizen, then we are talking about the bank details of individuals. It should be remembered that not only Indian citizens but also representatives of foreign states are also recognized as individuals. Moreover, the category of individuals must include self-employed and individual entrepreneurs. 

    People are free to choose from the following types of bank accounts:

    • current;
    • calculated;
    • credit (loan);
    • deposit.

    Current

    A valid current bank account is related to the standard financial instrument used by a citizen to receive wages or other income, incl. and from the entrepreneurial activity of individual entrepreneurs.

    It is the bank’s responsibility to credit the money received by the client no later than the day the payment document is handed over to the bank. Also, some clients contract banks to provide a shorter term for crediting funds. The salary account is opened for the individual at the employer’s request as it allows them to make fake transactions with funds. 

    Generally, all banks will explain to you that a salary account is a type of current account. A salary debit card is issued at any bank against the client’s request, or their current account gets connected to a salary project. 

    Single Column Cash Book

    Single column cash book is a special type of current account that individual entrepreneurs use to carry out settlement operations. For instance, an entrepreneur pays for assets, works, dispersing salaries, and services purchased for commencing business through the settlement.

    The entrepreneur is not obliged to open a separate business account. He is entitled to use a private card for business. However, a separate account for business is much more convenient. Allows you to split funds. 

    Credit

    A popular way in the lending field is the issuance of a credit card with a limited limit of funds. Credit relations between the cardholder and bank arise only when the credit limit is used (for example, while making a card purchase). As long as the client does not use a credit card, interest is not charged. 

    The bank officials will confirm that the credit card is a type of standard account for a loan, more precisely, an electronic means of payment.

    Savings or deposit

    A deposit account provides individuals with a way to save and increase savings. In all cases, an individual’s money is deposited into the bank at a certain percentage. Upon the expiration of the deposit term, the owner receives back the funds and accrued interest. If you want a deposit opened, you can start checking from renowned bank FDs deposit rates such as SBI fixed deposit interest rates.

    The key difference between the current and savings accounts is that the deposit operations are time-bounded. For instance, no one can withdraw the amount before the expiration of the deposit term, or the client will lose interest. Some kind of deposit does not even allow income. For example, you cannot make additional money on a closed deposit until the end of the contract. 

    Accounts of Organizations and Firms

    While creating a new legal entity, it is necessary to open a bank account mandated by RBI. Without this, the activities of the companies are almost impossible. 

    For legal businesses, the classification of bank accounts is as follows: 

    • current;
    • currency;
    • loan;
    • deposit.

    According to the rules set by the RBI, one has to register as an individual entrepreneur or establish an LLC as a proposal for opening a current bank account. Many entrepreneurs think: “What sort of things such an account can provide, I have a personal account, and nobody has canceled the cash”.

    What is a Current Account, and Why Do Organizations and Individual Entrepreneurs Need It

    According to the RBI, a current account is a bank account opened by a company or an individual entrepreneur to perform business-related transactions. 

    In simple terms, the essence of the current account is the operations necessary for the normal conduct of business. It allows you to perform operations such as: 

    • Payment of taxes and contributions to the Pension Fund.
    • For transferring of salaries to the employees. 
    • For making payment to the rental services, goods, works, or contractor services.
    • For making payment acceptance from suppliers and contractors.
    • For participating in government tenders.
    • Payment acceptance via Internet acquiring. 

    A current account helps corporations to operate within the framework of the law. Also, organizations are not allowed to pay taxes, fines, or penalties in cash. They must transfer such types of funds using a current account. 

    Individual entrepreneurs don’t need to open current accounts. However, an individual entrepreneur who opened an account has several advantages, namely:

    1. Receive and withdraw money according to their choices. There is a separate commission for transactions on the current account that depends on the tariff plan. Banks that work closely with small and medium-sized businesses generally offer very favorable rates. 
    2. They can start accepting payments from clients using Internet banking. 
    3. Clean before tax. According to the law of the land, an entrepreneur is obliged to differentiate between personal and business finance. Thanks to the checking accounts, the tax office can track receipts and monitor the tax payments’ validity. 

    Self-employed individual entrepreneurs can also open current accounts. It is very convenient if companies transfer money for services to them.

    How to Open a Current Account as an Individual Entrepreneur or Company:

    For opening a current business account, firstly, decide on the bank and select a tariff. Here are some tips that can help you choose a reliable and convenient bank for your business:

    1. Check what sort of tariffs the bank offers. 
    2. Choose an online bank. 
    3. See what types of useful services they offer. 
    4. Read reviews on banking forums.

    Next, you can consider reading about: What should Borrowers Look for Before Taking P2P Loans? And Ways in which Bridging Loans can Help you.

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