BANKING PRODUCTS

Banking Products are classified as 1) DEPOSITS and 2) LOANS. Both play a vital role in Personal Finance.

DEPOSITS:

Deposits are again classified as Demand Deposits and Term Deposits. Savings Account and Current Account are Demand Deposits and Fixed Deposits, Recurring Deposits, Cash Certificates are the Term Deposits.

Savings Bank Account:

One can consider the Savings Account as a must in Personal Finance. Salient Features of the Deposit is as under:

Minimum Balance:

Public Sector Banks – Rs. 1000; Private Sector & Foreign Banks Rs. 5000 to Rs. 2,00,000/=.

Zero Balance accounts opened in case of Salaried personnel subject to the condition that the salary is credited into the account. In case salary is not credited for 3 continuous months, account holder may be asked to maintain applicable Minimum Balance

Rate of Interest: 4% p.a on the daily balances to be paid at half yearly intervals.

Some Private Sector Banks pay interest @ 6% to 7% however, they come with restrictions in operations.

Interest on Savings Bank Accounts are eligible for deductions u/s Sec 80TTA of the Income Tax Act, 1961 subject to a maximum limit of Rs. 10,000/=

Miscellaneous

: Banks also allow facilities to Savings Bank Account Holders – a) Telephone / Net Banking, b) Fund Transfer facilities vide NEFT/ RTGS / IMPS c) Transfer of Accounts within Branches.

Nomination Facility is available in joint accounts also.

CURRENT ACCOUNTS

Current Accounts are similar to Savings Banks except for a) Minimum Balance required to be maintained shall be higher ranging from Rs. 5000/= to Rs. 5 lacs. b) Restriction on the number of cheques to be issued are relaxed, and, c) No Interest is paid on the credit balances.

FIXED DEPOSITS

Fixed deposits are a high-interest -yielding Term deposit and offered by banks. They are also known as Time Deposits or Term Deposits.

PERIOD:

Ranging from 15 days to 10 years.

MINIMUM DEPOSIT:

Public Sector Banks – Rs. 1,000/= ; Private Sector Banks Rs. 10,000/=

INTEREST:

Interest Rates varies according to the Repo Rates of the RBI.

VARIANTS:

Normally, 3 variants – a) With Periodic Interest Payments, b) Reinvestment Deposit – where interest gets compounded quarterly and Principal and the Interest is paid on maturity, and c) a variant of Reinvestment Deposit where a odd amount is invested to get a Round figure and normally called as Cash Certificates. Almost defunct, except in the case of some Public Sector Banks.

MISCELLANEOUS:

a) Interest is subject to Income Tax and liable to TDS if the interest in a year exceeds Rs. 10,000/=. TDS can be avoided by submission of Form 15G / 15H. Interest compounded quarterly.

b) Automatic Rollover of Principal or Principal with interest is permitted.

RECURRING DEPOSITS:

A special kind of Term Deposit which help people with regular incomes to deposit fixed amount every month and earn interest at the rate applicable to Fixed Deposits.

MISCELLANEOUS:

a) The amount of instalment once fixed, cannot be changed.

b) Installment for any calendar month is to be paid on or before the last working day of the month. Where there is delay in payment of installment, customer will be levied a penalty for the period of delay. Fraction of a month will be treated as full month for the purpose of calculating the penalty.

c) The total amount repayable to a depositor, inclusive of interest, depends on the amount of monthly installments and the period of deposit.

d) Nomination Facility is available in joint accounts

LOANS

Banks also offer Overdrafts and Loans to Retail Customers

OVERDRAFTS:

Overdrafts are Current Accounts with a Debit Balance. Customers are allowed to overdraw upto the Limit sanctioned from their Current Accounts. Overdrafts are normally secured by Assignment of Insurance policies (75% of the Surrender Value), or Lien on Fixed Deposit or National Savings Certificates, Quoted Shares and Mutual Funds. Interest is applied only on the amount availed and the rate depends on the type of security offered.

DEMAND / TERM LOANS:

Demand Loans are advances which are repayable on monthly basis with a maximum tenure of 36 months. Demand Loans are secured by a) Gold, b) Fixed Deposits, Quoted Shares, Mutual Funds.

Term Loans are advances made for purchase of an asset like Car or House or Apartment. These are loans which are repayable in monthly instalments and the period can range upto 20 to 25 years.

Disclaimer: This data above does not purport to be advice nor a complete guide on products or investing. An Investor must consult a licensed professional, on any of his investment decisions before investing.