Banking Theory And Practice
7
Chapter
Type of Deposit Account
Course Outline
Unit 1: Introduction to Banks & Other Financial Institutions.
Unit 2: Types of Banking System.
Unit 3: Banking Regulations and Supervision
Unit 4: Credit Creation and Monetary Policy
Unit 5: Banker Customer Relationship
Unit 6: Type of Deposit Account
Unit 7: Loans and Advances
Unit 8: Cash Management System
Unit 9: Negotiable Instruments
Unit 10: Capital Adequacy
Unit 11: Non-Performing Assets
Types of Deposits
Learning Objectives 7
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7.1 Types of Deposit
Process of Opening Bank Accounts
The procedure for opening a bank account is as follows:
1. Application in the Prescribed Form:
• Name of applicant
• Occupation
• Full address
• Sample signatures
2. Introduction of the Applicant:
3. Specimen Signature:
4. To make the Initial Deposit:
Following precaution must be adopted by the banker while opening an account:
Relationship between the Banker and Customer:
– Examination of trust deed.
– A banker must open the account in the name of trust.
– All the trustees should sign on the application form and signatures card.
– The banker should get clear instructions that who will operate the
account.
– A banker must study the provisions related to delegation of powers of
trustees.
– The banker must study the legal provisions also in regard to the
advancing loan.
Welcome Kit
On opening a bank account, the different services offered to the customers are:
1. Pay-in-Slip
2. Cheque Book
3. Pass Book
4. Cash Book
Differences between Cash Book and Pass Book
Deposits
A deposit account is a type of bank account that allows money to be
deposited and withdrawn by the account holder:
Deposit accounts are divided into two categories:
– Demand deposit
– Time deposit
Demand deposit is further classified into two
– Savings account
– Current account.
The two categories of time deposit are
– Fixed deposit
– Recurrent deposit
Demand Deposit Vs Time Deposit
1. Demand deposits are accounts where funds can be withdrawn by the
depositor at any time without any prior notice to the bank.
– These deposits are highly liquid and are often used for everyday transactions,
such as paying bills, making purchases, or withdrawing cash from ATMs.
2. Time deposits, also known as term deposits or certificates of deposit
(CDs), are accounts where funds are deposited for a fixed period of
time, ranging from a few months to several years.
– The depositor agrees not to withdraw the funds until the maturity date of the
deposit. If they do withdraw before the maturity date, they may incur penalties.
– Time deposits typically offer higher interest rates compared to demand deposits
because the funds are committed for a specific period.
Saving Account
Savings account refers to an account that is meant for people who keep
their saving to fulfill their financial requirements in future. It allows to earn
interest on the balance maintained:
– Features of Saving Account
• There is no restriction amount of deposits.
• Low Minimum Balances.
• Withdrawals are allowed subject to certain restrictions.
• The rate of interest payable is very nominal on saving accounts.
• Saving account is of continuing nature. There is no maximum period of holding.
• Convenience and Accessibility.
• The account can be either opened individually or jointly with another individual.
Current Account
An investor is also given the option of having a current account in the bank
for maintaining liquidity. A current account is usually opened by a business
house.
– Features of Current Account
• Current bank accounts are operated to run a business.
• It is a non-interest bearing bank account.
• It needs a higher minimum balance to be maintained as compared to the savings
account.
• Banker requires KYC (Know your Customers) norms to be completed before opening a
current account.
• There is also no restriction on the number and amount of withdrawals made
• Generally, bank does not pay any interest on current account.
Types of Current Account
Types of Current Accounts:
– Standard Current Accounts
– Basic Current Accounts
– Premium Current Accounts
– Packaged Current Accounts
– Foreign Currency Accounts
– Single Column Cash Book
Required Documents needed to open a Current Account based on Business Type:
Sole Trader:
– Personal identification documents of the sole trader (e.g., passport)
– Proof of address.
– Business registration documents (if applicable).
– Tax identification number (if applicable).
– Any licenses or permits required for the specific type of business.
– Depending on the bank, additional documents such as business plan, financial
statements, or references may be required.
Required Documents needed to open a Current Account based on Business Type:
Partnership:
– Personal identification documents of the sole trader (e.g., passport)
– Proof of address for all partners.
– Partnership agreement outlining the roles, responsibilities, and profit-sharing
arrangements among partners.
– Business registration documents for the partnership.
– Tax identification number for the partnership.
– Any licenses or permits required for the business.
– Financial statements (if the partnership has been operating for some time).
Comparison of Saving and Current Accounts
Comparison of Saving and Current Accounts
Choosing the Right Account for Your Needs
Recurring deposit Account
Recurring deposit account is opened by those who want to save regularly
for a certain period of time and earn a higher interest rate.
• In recurring deposit account certain fixed amount is accepted every
month for a specified period and the total amount is repaid with
interest at the end of the particular fixed period.
Features of Recurring Deposit Account
• The main objective of recurring deposit account is to develop regular savings habit
• The rate of interest is higher.
• No withdrawals are allowed.
• The bank can utilize such funds for lending to businessmen.
•
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.
• 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.
Features of Saving 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.
• The period of fixed deposits range between 15 days to 10 years.
• Withdrawals are not allowed.
Relationship between the Banker and Customer
Relationship between the Banker and Customer:
– Debtor – Creditor (Depositing Money)
– Creditor – Debtor (Taking a Loan)
– Principal – Agent
– Bailor – Bailee (Bank acts as the bailee & customer is the bailor)
– Trustor – Trustee
– Pledger – Pledgee (Customer pledges an asset as collateral for a loan)
– Mortgagor – Mortgagee (Customer is the mortgagor, and the bank is the mortgagee)
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7.2 Types of Account (Islamic Bank)
06/23/25 © - Shafie Alsow (May, 2024)
Types of accounts in Islamic Bank
Islamic banks offer a variety of accounts that comply with Shariah
principles.
– Current Accounts (Wadiah):
• Wadiah accounts are similar to conventional current accounts, where customers deposit
funds with the bank for safekeeping.
• The bank guarantees the return of the full deposit upon demand but does not provide
interest. Instead, the bank may offer a nominal gift or reward as a token of appreciation for
the use of funds.
– Savings Accounts (Mudarabah):
• Savings accounts in Islamic banking operate on the principle of Mudarabah, a profit-sharing
arrangement. Customers deposit funds, and the bank invests those funds in Shariah-
compliant activities. Any profits generated are shared between the bank and the depositor
according to a predetermined ratio. However, unlike conventional savings accounts, there is
no guaranteed interest rate.
Types of accounts in Islamic Bank
Islamic banks offer a variety of accounts that comply with Shariah
principles.
– Investment Accounts (Mudarabah or Wakalah):
• Islamic banks offer investment accounts where customers can invest their funds in Shariah-
compliant investment opportunities. These accounts may operate under a Mudarabah or
Wakalah (agency) structure, where the bank acts as an investment manager on behalf of
the account holders. Profits generated from the investments are shared between the bank
and the account holders according to agreed-upon terms.
– Fixed Deposit Accounts (Mudarabah):
• Fixed deposit accounts in Islamic banking operate on the Mudarabah principle. Customers
deposit a certain amount of money for a fixed period, and the bank invests these funds in
Shariah-compliant ventures. Upon maturity, the profits generated from the investments are
shared between the bank and the depositor according to agreed-upon terms.
Types of accounts in Islamic Bank
Islamic banks offer a variety of accounts that comply with Shariah
principles.
– Foreign Currency Accounts:
• Islamic banks may offer foreign currency accounts that comply with Shariah principles.
These accounts allow customers to hold and transact in foreign currencies while adhering to
Islamic financial principles.
– Specialized Accounts:
• Some Islamic banks may offer specialized accounts tailored to specific needs, such as
education savings accounts, retirement accounts or charitable accounts (where a portion of
profits may be donated to charitable causes).
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