34 Opening and Operating Deposit Accounts

34.1

Introduction

In the previous lesson, you have studied that people deposit money in different types of bank accounts and withdraw it whenever they desire. The objective of depositing money in a bank account may either be to save it for future needs, or to provide safety to it, or to invest it in case a higher rate of return is offered. There are different types of deposit accounts which are suitable for different purposes. You may now be interested to know what is to be done before money can be deposited in a bank account and also before it can be withdrawn from the bank. It is obvious that one needs to open an account with the bank and deposit money before it can be withdrawn from the account. In this lesson, we shall study how to open and operate deposit accounts.

34.2 Objectives
After studying this lesson, you will be able torecall the meaning of deposit accounts; classify various types of deposit accounts; discuss saving bank account and describe the procedure of opening and operating it;

36 :: Business Studies

explain fixed deposit account and describe the procedure of opening and operating it; explain current account and describe the procedure of opening and operating it; explain different types of recurring deposit accounts and describe the procedure of opening and operating them; differentiate between current and saving bank accounts;

34.3 Deposit Accounts

People need money for day to day expenses such as food, clothing, shelter as well as for future needs such as marriages, education and other social obligations. The money needed for future expenses are saved out of the present income. The saved money can be kept at home but there is risk of loss by fire and theft. Further it may not bring any return to one who has saved it. The saved money is kept with some one where its safety and return is guaranteed. We have studied in the earlier lesson that a bank is a place where money deposited is kept safe and earns interest on it. Bank offers the facility of opening various types of accounts where a depositor can deposit money saved by him. Depending upon the nature of accounts, deposit money can also be withdrawn to suit the convenience of the depositor.

Classification of deposit accounts

On the basis of purposes served, the deposit accounts can be classified as follows: 1. 2. 3. 4. 5. 6. Saving bank account Fixed deposit account Current account Recurring deposit account Cumulative cum sickness benefit deposit account Home construction saving account.

Saving Bank Account

Saving bank account is primarily meant for people with limited means

Opening and Operating deposit accounts :: 37

who want to save some money for future. In a saving bank account there are normally no restrictions on the amount to be withdrawn as well as on the frequency of withdrawal. The pass book issued to the saving bank account holder contains the rules regarding its operation. Saving bank account can be opened with a minimum amount of Rs 500, if cheque book facility is not availed. In case cheque book facility is availed, then the minimum balance required to be maintained is Rs 1000. The bank allows interest at the rate of about 5%. But the rate of interest keeps changing depending upon the instructions of Reserve Bank of India. Rural banks, co-operative banks and co-operative societies may allow an additional interest at the rate of 1/2%. The post office saving bank account earns interest at a higher rate as compared to commercial banks.

Procedure of opening the saving bank account

The following steps are normally to be undertaken while opening a saving bank account in a commercial bank: 1. Filling up the application form Any person who wants to open a saving bank account is required to fill up an application form available free of cost at the bank. The application form usually requires the following information to be submitted by the applicant: a) b) c) d) e) Name of the person/persons who want to open the account; Occupation of applicant His/her residential address Specimen signature of applicant Name and signature of the person introducing applicant to the bank and his account number. Two pass portsize photographs of applicant. Besides the above information the applicant has to give an undertaking that he would observe the rules and regulations of the bank. (For application, see annexure)

f)

38 :: Business Studies

Annexure

Mh-,Q-DF. 1161004000 Pads/2-96/0032

l s o k e s a @ T o i z c a / k d @ e q [ ;i z c a / k d @ TheManager/ChiefManager f l a f M d s Vc S a d /SYNDICA TEBANK
..............................................................

cpr cSad [kkrk la-@ SavingsBankAccountNo. c p rc S a d @ p k y w[ k k r k[ k k s y u sd sf y ,v k o s n u & i = o S ; f D r d @ l a ; q D r @ L o k f e R o

APPLICATION FOR OPENING OF SAVINGS/ CURRENT ACCOUNT-INDIVIDUALS/JOINT/ PROPRIETORSHIP

f i z ;e g k s n ; @ DearSir,
1 e S a @ g ev k i l sv u q j k s / kd j r k @ d j r hg w @ d j r sg S af dc S a dd hc f g ; k s ae s ae s j s @ g e k j su k e @ u k e k s ae s ac p rc S a d @ p k y w[ k k r k[ k k s y s a Ac p rc S a dp k y w[ k k r sl sl a c a f k ri z p f y rc S a dd sf u ; ev k S jf o f u ; e k s a d k se S a u s @ g eu si < +f y ; kg S Ae q > s @ g e s al e > k ; kx ; kg Se S a u s @ g e u sm U g s al e >f y ; kg Sv k S je S a @ g e, s l s[ k k r k s ad si z p f y rc S a dd sf u ; e k s ad ki k y ud j u sr F k km u l sc k / ;j g u sd sf y ,, r n ~ } k j k l g e rg w @ g S a Ae S a @ g e, r n ~ } k j k# # i ; s )i z k j a f H k dt e k j k f ' kd s: ie s ai z f " k rd j r k @ d j r hg w @ d j r sg S a A
I/We request you to open in my/our name/s Savings/Current Account in the books of the Bank. The rules and regulations of the Bank pertaining to Savings/ Current Account which are in force now, have been read by me/us/read over and interpreted to me/us and I/we have understood the same and I/we agree to abide by and to be bound by the Bank's ruloes for the time being in force for such accounts. I am/we are remitting herewith as my/our initial deposit Rs......................................... Rupees ..................................................................... e s j k @ g e k j su k e ]i r k @ i r sv k S jv U ;f o o j . ku h p sf n ; kx ; kg S a @ f n ; sx ; sg S a % My/our,name/s,address/esandotherparticularsaregivenbelow:

2 -

t e k d r k Z @ v k s ad k @ d su k e( v o ; L dg k s u sd se k e y s e s av f H k j { k dd su k ed kH k hm Y y s [ kd j s a )
Name of Depositor/s (in case of minor mention Guardian's name also)

; f nv O ; L dg k s r k st U e f r f F k
Date of Birth if minor

O;olk; Occupation

iwjk irk FullAddress

3 -

d )
a)

* * * *

f Q y g k ye S a @ g ef d l hv U ;c S a d @ ' k k [ k k v k s ae s a ] . kl h e kd km i ; k s xu g h ad jj g k @ j g hg w @ j g sg S a At cd H k hv U ;c S a d @ ' k k [ k kl s . kl q f o k k , am i y C kd : x k @ d : a x h @ d j s a x sr k sv k i d k s l w f p rd j u sd sf y ,o p u c g w @ g S a A
At present I/we am/are not enjoying any credit facility with any other Bank/Branches. I/We undertake to inform you as and when Credit facilities are availed by me/us with other Bank/Branches.

[ k ) b)

v U ;c S a d k s @ ' k k [ k k v k s al se S a @ g ef Q y g k y[ k k r kj [ k r k @ j [ k r hg w @ j [ k r hg S av k S jf u E u k a f d rl q f o / k k v k s ad km i ; k s xd jj g k @ j g hg w @ j g sg S a A At present, I/we am/are having account and enjoying the following facilities with other Bank/Branches. c S a d @ ' k k [ k kd ku k e l q f o / k kd kL o : i
Nature of facility

e w yv f x z e @ l h e k
Original Advance/Limit

c d k ; k ' k s " k
Balance Outstanding

i z f r H k w f r ; k
Securities

Name of the Bank/Branch

4 4 1

l a ; q D r[ k k r k s ad se k e y se s a @ IncaseofJointaccount g ev k i l sv u q j k s / kd j r sg S av k S jv k i d k si z k f / k d ` rd j r sg S af db l d sf o i j h rg ee s al sf d l hd sf y f [ k r: il su k s f V ln s u sr dg ee s al s-} k j kg e k j hr j Q l sl a ; q D rv k S j @ ; ki ` F k d: il sg L r k { k f j rl H k hp S d k s a ]t k j hf d ; sx ; svU ;v k n s ' k ]L o h d ` rf o f u e ; & i =; ko p u & i = k s ad k sl d k j s av k S j, s l sp S d k s ad k sv k i d k s; g k f L F k rg e k j s[ k k r se s au k e s M k y s ap k g sm ll e ;m l[ k k r se s at e k ' k s " kg k s; kv / ; k g f j rg k s Ag ev k i l s; gH k hv u q j k s / kd j r sg S af dg e s ai z n s ;p S d ]v k n s ' k ]f c y; ko p u & i = k s ai jg ee s al s-d s l a ; q D rv k S j @ ; ki ` F k d: il si ` " B k a d ud k sH k hL o h d k jd j s a A
We request and authorise you, until any one of us shall give you notice in writing to the contrary, to honour all cheques or other orders drawn or Bills of Exchange accepted or notes made on our behalf singed by ....................................................................................... of us jointly and/or severally and to debit such cheques to our account with you whether such account be for the time being in credit or overdrawn. We also request you to accept the endorsement of ............................................................................................................ ......................................................... of us jointly and/or severally on Cheques, Orders, Bills or Notes payable to us.

4 2

v i u s[ k k r sd sf g l k cl sv k i d sd e h ' k u ]C ; k tr F k kv U ;i z H k k j k s al f g rf d l hl e ;v k i d k sn s ;j k f ' k ; k s ad sf y ,l a ; q D r @ i ` F k d: il sc k / ;g k s u sd sf y ,g eo p u c g S a A; f n[ k k r kv / ; k g f j r g k st k r kg S @ [ k k r se s au k e' k s " kd sf y ,v u q e f rn ht k r hg S ]r k si z k ; k s T ;n ji jv k i d sd e h ' k u ]C ; k tv k S jv U ;i z k l a f x di z H k k j k s al f g rl e ;i jv k i d k sn s ;j k f ' k ; k s ad sf y ,l a ; q D r, o a i ` F k d: il sc k / ;g k s u sd kg eo p un s r sg S a A

We undertake to be jointly and severally liable to you for any moneys owing to you from time to time in case the account is overdrawn and/debit balance is allowed including your commission, interest at the appropriate rate and other incidental charges.

4 3

v i u s[ k k r sd sf g l k cl sv k i d sd e h ' k u ]C ; k tr F k kv U ;i z H k k j k s al f g rf d l hl e ;v k i d k sn s ;j k f ' k ; k s ad sf y ,l a ; q D r @ i ` F k d: il sc k / ;g k s u sd sf y ,g eo p u c g S a A; f n[ k k r kv / ; k g f j r g k st k r kg S @ [ k k r se s au k e s' k " kd sf y ,v u q e f rn ht k r hg S ]r k si z k ; k s T ;n ji jv k i d sd e h ' k u ]C ; k tv k S jv U ;i z k l a f x di z H k k j k s al f g rl e ;i jv k i d k sn s ;j k f ' k ; k s ad sf y ,l a ; q D r, o a i ` F k d: il sc k / ;g k s u sd kg eo p un s r sg S a A

In the event of the death, insolvency or withdrawal of any of us, the Survivor/s of us shall have full control of any moneys then and thereafter standing to our credit in our Account with you, and in that event the Survivor/s will have full powers to operate the Account and/or to close the Account.

t k sy k x wu g h am l sd k Vn s a Strikeoutifnotapplicable

@d s o yc S a dd sm i ; k s x k F k Z @ FORBANKUSEONLY

Opening and Operating deposit accounts :: 39

5 5 1 u k e k a d u( ; f nv k o ' ; dug k sr k se n5 1v k S j5 2d k Vn s a )
NOMINATION (Strike out items 5.1 and 5.2 if not required)

e s j h @ g e k j h @ v o ; L dd he ` R ; qg k s u si jv k i d si k l[ k k s y sx ; se s j s @ g e k j sb l[ k k r se s af L F k rt e k j k f ' kd hj d ed k so k i li k u sd sf y ,e S a @ g ef u E u k a f d rO ; f D rd k su k e k a f d rd j r k @ d j r hg w @ d j r s g S a A
I/We nominate the following person to whom in the event of my/our/minor's death the amount of the deposit outstanding in my our account, opened herewith, may be returned by you.

u k f e r hd ku k ev k S ji r k
Name and Address of the nominee

v k ; q @ Age

t e k d r k Z @ v k s al sl a c a / k ]; f nd k s b Zg k s
Relationship with the depositor/s, if any

t U e f r f F k ]; f nu k f e r hv o ; L dg k s
Date of Birth if nominee is minor

5 2

p w f du k f e f rb lr k j h [ kd k sv o ; L dg Sv k S jm lu k f e r hd hv o ; L d r kd sn k S j k ue s j h @ g e k j h @ v o ; L dd he ` R ; qg k s u si ju k f e r hd hv k s jl st e k j k f ' ki z k I rd j u sd sf y , e S a @ g e @ J h @ J h e r h @ d q e k j h d h v k ; q d h ] f u o k l h d k s f u ; q D r d j r k @ d j r h g w @ d j r s g S a A
As the nominee is minor on this date, I/we appoint Sri/Smt./Kum .......................................................................................................... to receive the deposit on aged .......................................... years, residing at .............................................................................................................. to receive deposit on behalf of the nominee in the event of my/our/minor's death during the minority of the nominee.

; f nt e k j k f ' ku k c k f y xd su k ee s at e kd ht k r hg S ]r k su k e k a d ui jm lO ; f D rd sg L r k { k jg k s u sp k f g ,t k su k c k f y xd hv k s jl sd k ; Zd j u sd sf y ,d k u w u hr k S ji jv f / k d ` rg S A
When a deposit is made in the name of the a minor, the nomination should be signed by a person lawfully entitled to act on behalf of the minor.

6 -

e s j k @ g e k j k @ g e k j s} k j k i jl w f p ri z k f / k d ` rO ; f D r @ O ; f D r ; k s ad su e w u kg L r k { k jd k M Ze S a @ g el a y x ud jj g k @ j g hg w @ j g sg S a A
I/We enclose specimen signature card/s of mine/us/of the person/s authorised by us above.

v a x w B kf u ' k k u k s ad se k e y se s av u q i z e k . k d k s ad sg L r k { k j ]u k eoi r k
In case of thumb impressions Signature, name and address of attestors 1. 2.

Hkonhi@Yours faithfully,
................................................................................................................ ................................................................................................................ ................................................................................................................ t e k d r k Z @ v k s ad sg L r k { k j @ Signature/sofDepositor/s

( L o k f e R o[ k k r k s ad se k e y se s aj c M +d he k s g jy x k b , )
(Affix rubber stamp in case of proprietorship)

fnukad@Date:.............................. ( L o k f e R o[ k k r k s ad sf y , ) e S a -d su k ev k S j< a xe s aO ; k i k jd jj g kg w v k S j; gf de S am D rl a L F k kd k, de k =e k f y dg w Av k x se S av k i d k sl w f p rd j u kp k g r k @ p k g r h g w f dv k i d sl k F kg q ,l H k hl a p k y u k s av k S jm i x rc k / ; r k v k s a ]p k g so gO ; k i k j fu k e; ke s j so S ; f D r du k e; kv U ;d sl a ; k s t ul sg k s ]d sf y ,e S af t E e s n k jg w ]t k se s j s} k j kv U ; F k kf y f [ k rl w p u k n s u sr di z H k k o h @ y k x wj g s x k A
(For Proprietorship Accounts) I am trading under the name and style of ..................................................................................................................... and that I am the sole proprietor of the said concern. I further wish to intimate that I am responsible for all transactions entered into and obligations incurred with you whether under the trade name of in my individual name or in conjunction with others till I inform in writing otherwise.

Hkonh;@Yours faithfully, ekfyd ds gLrk{kj@SignatureofProprietor

fdlds }kjk ifjp; djk;k x;k@INTRODUCEDBY

e S a @ g e f i N y s o " k k s l s t e k d r k Z l s i f j f p r g w @ g S a A
I/We know the Depositor since ............................... years.

d s o yc S a dd sm i ; k s xd sf y ,
FOR BANK USE ONLY

uke/Name g L r k { k jv k S jf n u k a d/Singnature&Date: i f j p ; d r k Zd sg L r k { k jd kl R ; k i uf d ; kv k S jB h di k ; k i w j ki r k; k[ k k r kl a -, o an w j H k k " kl a [ ; k; f ng k sr k s%

Full Address or A/c No. and Telephone No. if any : Signature of introducer verified and found in order

u k e k a d ui a t h d j . kl a [ ; k, o af n u k a d
Nomination Registration No. & Date

f n u k a d %
Date :

i z k f / k d ` rg L r k { k j d r k Z
Authorised Signatory

[ k k r k l a Account No.

f o ' k s " kl g k ; d @ l g k ; di z c a / k d @ Spl.Asst./Asst.Manager

m i & i z c a / k d @ i z c a / k d @ Sub-Manager/Manager

40 :: Business Studies

2.

Introduction of the applicant At the time of opening the saving bank account, the person who desires to open the account is introduced to the bank by a person who is already an account holder of the bank or by parties known to the bank. This is done to prevent the opening of an account by any undesirable person. Banks, therefore, require proper introduction of every person at the time of opening the account. The name, address and signature of the person introducing the applicant to the bank is necessary to open the account.

3.

Specimen Signature Normally bank obtains the specimen signature of the applicant on a separate card/sheet on which photograph of the depositor is pasted. This is to ensure that money deposited is withdrawn only by the depositor. A specimen of signature card/sheet is given below.

uewuk gLrk{kj dkMZ

f o ' k s " kv u q n s ' k

Specimen Signature Card

[ k k r kl a [ ; k
Account No.

f l a f M d s Vc S a d SYNDICATE BANK

Special Instructions

[ k k r s n k jd ku k e
Name of the Account Holder

O;olk;/Occupation i w j ki r k
Full Address

v o ; L dd ht U e f r f F k
Date of birth of Minor

xBu

Constitution:

g L r k { k j d r k Zd ku k e
Name of the Signatory

[kkrk la[;k
1.

Account No.

u e w u kg L r k { k j
Specimen Singature 2. Photo

' k k [ k k
Branch

f n u k a d

/date

i z c a / k d /Manager fM-,Q-D.F.157/1005100 Pkfs. 9-96/029 Figure: 34.1 Specimen Signature Card

This specimen signature card/sheet is preserved by the bank. Whenever the depositor wants to withdraw money, his signature is tallied/compared with his specimen signature. If the signature differs, the bank refuses to make payment. The specimen signature

Opening and Operating deposit accounts :: 41

thus protects not only the bank but also the account holder against withdrawal by any person other than the depositor. After the formalities stated above are completed and the bank is satisfied, the bank opens the account in the name/names of the applicant, (or applicants, in case it is desired to open the account in joint name).The applicant is given an account number. The bank also issues a Pass Book/Statement which records the deposits made, amount withdrawn and the balance to the credit of account holder. If the customer desires to avail of the facility of cheque book, it can be issued to him.

Cheque
A cheque is an order by the customer of the bank directing the banker to pay on demand the specified amount, to or to the order of the person named therein or to the bearer. There are two types of cheques i) ii) Bearer/Order cheque Crossed cheque

A specimen cheque form is given below.

Figure: 34.2 Specimen of Cheque Form

42 :: Business Studies

Operating the saving bank account

Operating a bank account means dealing with the bank when the account holder deposits money into the bank and withdraws money from it. A special feature of operating the bank account is that each transaction of deposit/withdrawal is supported by a separate slip or document. Hence a customer is required to make use of i) ii) Pay-in-slip form for depositing cash or cheque in the bank account; Cheque or withdrawl slip for withdrawing the money from the bank.

Pay-in-slip
Pay-in-slips are printed forms with perforated counterfoils used for depositing cash or cheque. It contains information in respect of the name of account holder, amount deposited, and the signature of the person depositing it. On the receipt of money, the cashier signs and stamps the pay-in-slip and the counterfoil. The counterfoil is given back to the depositor which serves as a proof of deposit. The counterfoil must be kept safe for future reference. Some banks prescribe and supply separate slips of different colours for depositing cash and cheques, drafts etc., while others supply the same type of slip for depositing cash and cheques. In case the deposit is made in cash, the particulars of different denominations of currency notes are to be given. The main foil is retained by the bank and the other part of the foil known as counterfoil is returned to the depositer. A specimen of Pay-in-slip is given below.

Opening and Operating deposit accounts :: 43

Pass Book
The bank provides the account holder a small and handy book in which it records all the transactions of deposits and withdrawals. This book is known as pass book. Pass book in reality is a copy of the account-holders ledger account maintained by the bank. Where the banking operations are computerised the bank issues a computerised sheet for withdrawal and deposit by the customer, or a pass book in which records of deposit and withdrawal are made by the computer.

Figure 34.4 Specimen of Pass Book

Withdrawal from saving bank account

Whenever the account-holder wants to withdraw money from his account, he can either withdraw the amount by filling up a withdrawal form or by issuing a cheque. Withdrawal can also be made from the depositor's account when he or she issues cheques in the name of some

44 :: Business Studies

other person or party. When money is withdrawn either by presenting with drawal form or cheque in favour of the account holder, it is known as cash withdrawal. A specimen of withdrawal form is given below

Figure 34.5 Specimen of Withdrawal Form

When the account holder avails of cheque facility, he can issue cheques for withdrawing money or making payment to others. The cheque or the withdrawal slip is handed over to the bank clerk at the bank counter for withdrawing the money. If every thing is correctly written and there is sufficient balance in his account and his signature tallies with the specimen signature, the bank clerk enters the amount of withdrawal in his account in the ledger and gives a metal disk or token bearing a number. The cheque or withdrawal slip is sent to the cashier for payment and the payment is made. In case the account-holder wants to make payment to some one by cheque, he has to write the name of that person/party on the cheque. However, no payment is made to any other person on the basis of withdrawal form.

Teller system of withdrawal

Under this system one person in the bank, handles all the payments

Opening and Operating deposit accounts :: 45

upto Rs. 10,000 or so to the account holders. (The amount differs from bank to bank). He receives the cheque/withdrawal form, marks the entry in the ledger account, verifies the signature and makes payment. Under the teller system money can be withdrawn quickly. In other words, the teller system facilitates quick withdrawal from the bank.

Debit Slip
When the bank charges any amount from customers account in connection with its services, a debit slip is prepared and the amount is debited to the customers account. Thus, the debit slip reduces the balance in the customers account. A specimen of debit slip is given below

Figure: 34.6 Specimen of Debit Slip

Payment of Interest
Interest at the rate of about 5% per annum is allowed on the credit balance of the saving bank account though the rate of interest keeps changing with the instructions of the Reserve Bank of India. Interest is calculated on the minimum balance held in the account during the period starting from the 10th day to the last day of each calender month.

46 :: Business Studies

Intext Questions 34.1

1. Write T against the following statements which are true and F against those which are false. No interest is allowed on saving bank account. Any number of withdrawals can be made from savings account. One has to fill up pay-in-slip for depositing money in saving bank account Pay-in-slip is used to withdrawal money from bank. Money is deposited in saving bank account for a fixed period. Interest paid by a commercial bank on saving bank account is higher than in a co-operative bank. While opening a saving bank account, the bank requires specimen signature of the depositor. At the time of payment, the bank clerk tallies the signature with signature card. Any person can deposit any amount in saving bank account. Saving bank account holder cannot avail of withdrawal form facility in case he avails of the cheque book facility. Saving bank account holder cannot introduce any person at the time of opening new account in the bank. Match the word in the first column with the statements in the second column. Cheque Pass book Pay-in-slip a) Document used to deposit money b) Document used to withdraw money c) Document required for opening an account

i) ii) iii)

iv) v) vi)

vii)

viii)

ix) x)

xi)

2. i) ii) iii) iv)

Application form d) Contain the records of all transactions of a customer with his bank.

Opening and Operating deposit accounts :: 47

3. i) ii)

Fill in the blanks with appropriate words: ____________ is used for depositing money into a bank account. One part of the pay-in-slip is known as main foil and the other part as____________ Counterfoil of the slip is returned to the _________ by the bank. Counterfoil acts as a _________ of money deposited into the bank by the ___________ Pay-in-slip is supplied by ______________ free of charge.

iii) iv)

v)

34.4 Fixed Deposit Account

It is also known as term deposit account. Money deposited in fixed deposit account ranges for a period starting from 30 days to more than 3 years. At the end of the specified period, the depositor may either withdraw the money or renew the deposit further for a specified period. Banks pay interest on fixed deposit depending upon the period for which the deposit is kept with the bank. The rate of interest on fixed deposit account normally ranges from 6% to 12% per annum. People who want safety, prefer a reasonable rate of return and do not believe in taking risk, go for fixed deposit accounts.

Procedure of opening and operating fixed deposit account

For opening a fixed deposit account, a depositor is required to fill up an application form in which he has to mention his own particulars, such as name, fathers name, residential address, etc. The amount of deposit and the period for which deposit is to be made also needs to be mentioned. He has also to give specimen of his signature. When the bank is satisfied with the formalities, the depositor is asked to deposit the amount. After the deposit of the amount, the bank issues a fixed deposit receipt. A fixed deposit receipt is an acknowledgement of receipt of the sum of money specified therein. The fixed deposit receipt mentions the amount, period, rate of interest and the amount to be paid on maturity.

48 :: Business Studies

A specimen of fixed deposit receipt is given below

Figure 34.7 Specimen of Fixed Deposit Receipt

Rate of interest on fixed deposit.

The rate of interest and other terms and conditions regulating fixed deposits are determined by the Reserve Bank of India for all commercial banks. The Reserve Bank of India keeps on revising the rate of interest from time to time. The rate of interest currently applicable on fixed deposits are as follows. Revised interest rates on bank fixed deposits with effect from 17-1-1998.

Opening and Operating deposit accounts :: 49

Names of Bank

30-45 46-60 days days 6.0 6.0 8.0 6.0 7.0 6.5 7.0 8.0 6.0 7.0

61-90 91-120 170-179 days days days 6.5 8.0 8.5 6.0 7.0 7.5 8.5 8.5 7.0 8.0 7.5 8.5 9.5 7.0 8.0

Bank of Maharastra Canara bank Oriental Bank of Coms. Sate Bank of India Union Bank of India

180-270 days

271-364 days

1 year to 2 years 10.5 10.5 11.5 10.5 10.5

2 year to 3y ear 11.0 11.0 12.0 11.0 11.0

3 year to 5 year 12.0 12.0 12.0 12.0 11.5

8.5 9.0 9.5 8.5 9.0

8.5 9.0 10.5 8.5 9.0

Payment of interest
Though the interest is payable on the maturity of fixed deposit account, banks may pay interest quarterly or half yearly also. In case the bank pays interest before maturity, the amount of such interest is transferred to depositors saving bank account. Normally the interest on fixed deposit is compounded in case the depositor does not withdraw the interest. If the fixed deposit is renewed, the interest on it is also compounded. When the depositor fails to claim the deposit on due date and later on desires to renew the deposit, the bank may renew it from the date of maturity. In such a situation the depositor does not lose the interest.

Payment of fixed deposits before the date of maturity

Fixed deposits are normally payable on maturity. In case the depositor

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requires the money before the due date, he or she makes a request to the bank for its payment. The bank may consider such a request and make payment of the fixed deposit. When the payment of fixed deposit is made before the date of maturity, the depositor loses interest which is 1% less compared to the rate applicable for the period.

Advance against fixed deposits

The bank may grant loan against fixed deposit receipt. But according to the directions of Reserve Bank of India, the rate of interest charged on such a loan is to be at least 2% above the rate payable on the deposit.

Fixed deposit in joint names

Fixed deposits may be made in the joint names of two or more persons payable to either or survivor. The money on such deposit is payable to either of them or survivor at the time of maturity.

Intext Questions 34.2

Write T against the statements which are true and F against those which are false : i) ii) iii) iv) v) vi) Higher rate of interest is paid on fixed deposit account. Fixed deposit account cannot be opened in joint names. Interest is paid on overdue deposit, if it is renewed. Loans can be taken against fixed deposit receipt We cannot withdraw fixed deposit before the date of maturity. Higher rate of interest is paid an fixed deposit account than the saving bank account. Survivor cannot receive the amount of fixed deposit after the death of depositor. Fixed deposit receipt cannot be encashed before the date of maturity.

vii)

viii)

Opening and Operating deposit accounts :: 51

ix) x)

Bank cannot reduce the rate of interest in case fixed deposits encashed before the due date. Fixed deposit account is opened only in single name.

34.5 Current Account

In current account, a customer can withdraw or deposit money any number of times he desires. Current account is suitable to those persons who either deposit or make payments frequently. It is thus suitable for business people and institutions which have frequent dealings with the bank. Bank permits overdraft facility on current account. In view of this facility, the banks do not pay any interest on current accounts. Some times, banks charge some amount from the current account holder as fees for the services extended. Current account holders have to maintain a minimum amount of Rs.2000 as balance in the account. Such accounts are normally operated through cheques. Special features of the current account are: 1) It provides convenience of operation as certain facilities are associated with current account. The objective is not to mobilize saving through such account. The current account has an operating cost. There are bank charges for the services provided to the holder of current accounts. Banks do not pay any interest on such accounts.

ii)

iii)

Opening the current account

The procedure for opening a current account is the same as that of saving bank account. To open a current account, one has to fill up the prescribed application form giving all the information required by bank. The applicant must be introduced by a person known to the bank and operating current account with it. The specimen signature of the person who will operate the account must also be put on a separate card. After completing all the formalities, the applicant is given an account number to be mentioned at the time of withdrawing money or depositing any amount in the account.

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Operating the current account

Unlike saving bank account money can be withdrawn any number of times from this account. Money can also be deposited in current account as many times as the depositor desires. With the permission of the bank, a depositor can withdraw money in excess of what he has deposited in the bank. This facility is known as overdraft facility and is normally granted only to current account holder. The steps for operating the current account as far as depositing money is concerned is the same as in the case of saving bank account. Similarly the steps for withdrawing money or making payment from the account through the issue of cheques is also the same as with saving bank account.

34.6 Distinction between Current Account and Saving Bank Account

S.No. Basis of Difference 1. Operation of accounts Current account Current account is mainly opened and operated by business firms and institutions. Deposits and withdrawals can be made frequently. There is no limit to its frequency. No interest is paid by bank on such account. Saving bank account Saving bank account is mainly opened by individuals and salaried people.

2.

Withdrawals

Withdrawl are not permitted as frequent as in case of current account.

3.

Interest

Interest is paid on saving bank account though the rate of interest happens to be low. No such facility is allowed.

4.

Overdraft

Overdraft facility is available. Service charges are payable

5..

Service charges

No. service charges payable.

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Intext Questions 34.3

Write T against the statements which are true and F against those which are false i) ii) iii) iv) v) vi) vii) viii) ix) There is no need to fill up any application form for opening a current account. Introduction is a must for opening a current account. Withdrawls can be made from current account any number of times during a working day. Current account can be opened without initial deposit in the bank. Interest is paid on current account balance. There is no limit or minimum balance in current account. Rate of interest on current account is lower than that on saving account. The current account cannot be opened in joint names. When the current account is opened in joint names, any one person can operate the account.

34.6 Recurring Deposit Account

The procedure for opening a recurring deposit account is the same as in the case of saving bank account. The recurring deposit account can be opened by any person either individually or jointly or by a guardian in the name of a minor. At the time of opening the account, the depositor is given a pass book which is to be presented at the time of depositing money. The depositor deposits a fixed amount once in a month before the 10th day of month, or once in a month, in the account for a given period. Normally the withdrawl from such account is not permitted. However, the depositor can take loan from the bank against the security of recurring deposit account.

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The interest earned on recurring account is higher than on the saving account. It varies with the duration of deposit. Currently the rate of interest on recurring deposit account is higher than saving bank account and lower than fixed deposit account. Types of recurring deposit scheme: i) ii) iii) Home safe account Cumulative-cum-sickness deposit scheme Home construction deposit scheme

Home safe account

In home safe account the bank provides a safe or box (Gullak) to the depositor for the purpose of saving money. The depositor puts money in the safe or gullak periodically. The money saved is collected by the banks representative and credited to the account of the depositor. Normally such accounts carry only a nominal rate of interest. Though it promotes saving habit among people, it is not found to be very popular.

Cumulative-cum-sickness deposit scheme

The purpose of such deposit is to provide security against sudden illness or uniforeseen circumstances to the depositor. After opening such an account, the account holder deposits regularly a certain sum of money in the account. The deposited money along with interest earned on it, is utilized for making payments of medical bills, hospital bills and doctors bill etc.

Home construction deposit scheme

Home construction deposit scheme is meant for either constructing or purchase of a house. It helps a person to purchase or construct his house. The scheme involves regular deposit of a certain amount for a period. The amount deposited along with interest can be utilized for the purpose of construction or purchase of house. The rate of interest offered on such scheme is higher as compared to other schemes. It is an attractive scheme that helps individuals to make a plan for construction of house within a few years.

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Intext Questions 34.4

Write T against the statements which are true and F against those which are false. i) A guardian can open recurring deposit account in the name of a minor. The amount can be withdrawn before maturity of deposit under recurring scheme. The bank provides a safe or box to the depositor at the time of opening home safe deposit account. The depositor puts money in the safe or box under home safe deposit scheme. The banks representative does not collect the amount from time to time under home safe deposit scheme. Recurring deposit scheme carry only a nominal rate of interest. Home safe deposit account promotes saving habit in the children.

ii)

iii)

iv)

v)

vi) vii)

34.8 What You Have Learnt

The following types of deposit accounts can be opened in commercial banks: Saving bank account, Fixed deposit account, Current account, Recurring deposit account. Any person who wants to open a saving bank account has to fill an application form provided by the bank. The application must be introduced by an existing account holder. The applicant has to give his specimen signature on a separate card which is used by the bank when the depositor wants to withdraw mony from his account. After this the applicant has to deposit a minimum amount. He is then allotted an account number, which is later on used as a reference. The bank, thereafter, provides the customer Pay-in-slip, Cheque book, Pass book, etc.

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In the case of fixed deposit account, an amount is deposited with the bank for a fixed period. The bank issues a fixed deposit receipt to the depositor mentioning the amount, period and rate of interest to be paid on the deposit. Interest is payable on the maturity of the fixed deposit. Banks permit withdrawal of a fixed deposit even before the due date at the request of the depositor. The bank may also grant loan against fixed deposit. The fixed deposit account can be opened individually or in joint name of two or more persons. For opening a current account one has also to apply on a prescribed form of the bank giving all the details and introduction from an existing account holder. The bank also requires the specimen signature of the applicant. The applicant has to make an initial deposit which differs from bank to bank. The bank thereafter provides the customer with pay-in-slip, cheque book and pass book. A current account holder can withdraw money as often as he wants. Overdraft is also allowed against current account on previous arrangement with the bank. The recurring deposit account can be opened by any individual, or any one jointly with others. Banks offer the same rate of interest on such deposits as is applicable in respect of fixed deposits. A depositor can close the account before the expiry of the period agreed upon. But in that case he is allowed a lower rate of interest.

34.9
i) ii) iii) iv) v)

Terminal Exercise
Discuss in brief how to open and operate a saving account. Discribe the procedure of opening and operating a current account. Discuss how fixed deposit account can be opened. Differentiate between saving bank account and current account. Can a customer encash a fixed deposit receipt before the due date? Discuss. Write short notes on(a) (b) Recurring deposit account Specimen signature card

vi)

Opening and Operating deposit accounts :: 57

(c) (d) (e) (f) vii) viii)

Pay-in-slip Pass book. Cheque book Types of cheque

What is a pay-in-slip? What purpose does it serve? What is a pass book? Discuss its importance. Does the depositor have any remedy for wrong entries made in the pass book? What is fixed deposit receipt? Why is it issued? Differenciate between: (a) Pass book and Cheque book. (b) Pass book and Fixed deposit receipt.

ix) x)

xi)

Can we withdraw any amount in excess of the balance in current account? Discuss Practical Activity: Please go to a bank and open a saving bank account after completing all formalities.

34.10 Answers to Intext Questions

34.1 1. i) False v) False ix) True 2. 3. i) b ii) False vi) False x) False ii) d iii) True vii) True xi) False iii) a ii) Counter foil iv) c iii) depositor iv) False viii) True

i) Pay-in-slip

iv) proof customer v) Bank 34.2 i) True vi) True ii) False vii) False iii) True viii) False iv) True ix) False v) False x) False

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34.3 i) False vi) False 34.4 i) True v) False

ii) True vii) True ii) True vi) True

iii) True viii) False iii) True vii) True

iv) False ix) True iv) True

v) False