Everything You Need to Know About Bank Accounts in India

As the world goes digital, so does the way banking is conducted. Being one of the early adopters of the digital revolution, the banking sector is well situated to ride out the pandemic and lockdowns by going strictly online. That is a trend we have been seeing for quite some time now. One of the biggest developments in this arena is the fact that you can even open a bank account online.

Why do you need a bank account?

Don’t trust the banking system? I mean, why should you. After-all they are the reason we have individuals such as Vijay Mallya and Nirav Modi. However, Indian government’s aggressive and long overdue push towards a digital transformation has made it neigh impossible for one to participate in the modern society without owning a bank account. Apart from that, being the astute financial enthusiast you are, to purchase any financial asset, receive any subsidy or grant, pay for your EMIs, you simply need to have a bank account.

But, getting a bank account is not the same as walking into a bank and asking for it. You actually need to know what works for your specific purposes and what does not. Sadly, they don’t teach you this in school and that’s why we got you covered in our deep dive on types of bank accounts and what they mean. Read on!

Savings Bank Account (SB Account)

This is the most common type of bank account there is. It is highly unlikely that you don’t know about this one, so why are we talking about it? Well, being the most conventional bank account type, it is important that we don’t suffer from ignorance and actually learn about the ins and outs of how a savings bank account works.

At its very core, a savings accounts is essentially an interest-bearinng deposit account which you hold with, usually a bank. One of the key elements common to all SB accounts regardless of which bank you choose to go for is te fact that these accounts always pay a modest but assured interest rate. The fact that SB accounts are also relatively stable and reliable contributes to the account’s validity as an option for parking cash for short term requirements.

Savings accounts, however, are important to banks as well. Being one of the most important source of capital that banks can turn around and lend to others, makes the availability of SB accounts ubiquitous. So you definitely won’t have any problems finding a SB provider.

However, the fact that most SB accounts will typically have some limitation on the amount you can withdraw as well as how many times you can do that introduces some friction for particular use cases such as for businesses. So, what should you do if you are thinking about starting a business? Let’s find out!

Current Account (Checking Account)

Considering the downsides to a Savings account in relation to the limitations placed on amount and frequency of money that can be transacted, more often than not corporations, public enterprises, businessmen, etc. Such current accounts include deposits, withdrawals, contra transactions, etc to name a few. The reason such accounts are used in the first place is because of the fluidity offered on such accounts, that however means capital put in these accounts do not attract any interest. However, since such accounts allow the handling of a very large amount of cash, receipts and payments along with limitless withdrawal often with levied cash transaction fee, it is a popular choice amongst individuals with cash intensive business operations.

However, if you need a current account to conduct your business, you must know that such accounts are not offered by every bank or every branch. Given the fluidity of current accounts, banks cannot use said capital to lend others. Thus, there’s fees levied on services offered. I highly suggest you weigh these costs and compare the same before deciding on any particular bank.

Demat Account (Trading Account)

Now, we have all heard of the stock market. If you are a complete begineer on the topic of share market, it’s alright we all start somewhere. So, the first step you need to take before even buying a stock is to have a DEMAT account. The name DEMAT is an acronym for the word Dematerialisation, signifying the move from actual physical certificates as proof of ownership to electronic bookkeeping.

Demat accounts being a form of trading account is designed with the purpose of holding securities cash, or such other investment vehicle offered by the brokerage of your choice. In India, all Demat accounts are maintained by National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

A distinction however must be made between a demat acccount and a trading account. The former is a tool for holding assets bought using the later. Therefore, in most instances a demat account will invariably be linked to a trading account.

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Sayon Bhattacharya
I am an entrepreneur by profession but a philosopher by passion and I believe my businesses are the perfect playing ground to test the two. Being a student at one of India's premier B-Schools gives me the exposure I need to meet new and exciting people and being an avid finance nerd, I strive to improve myself and make others aware of the need and urgency of financial literacy.
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