Question

Name the types of deposit accounts of the commercial banks.

Briefly explain various types of deposits with the commercial banks.

Explain the ‘acceptance of deposits’ function of a commercial bank.

Explain any two types of deposits of a commercial bank.

Answer 1

1. Acceptance of Deposits: Commercial banks’ principal role is to accept public deposits. Individuals, businesses, and other institutions make deposits with banks. A bank’s main source of funds is deposits. People with spare funds may wish to deposit them with commercial banks to earn interest, for safekeeping, or for convenience. This is a crucial function since it facilitates the mobilisation of savings for productive use. Banks often accept three types of deposits:
   1. Current Account Deposits: These deposits can be withdrawn at any time, which is why they are also called demand deposits. There is no limit on the number or amount of withdrawals, and funds can be withdrawn by cheque. Current accounts are primarily used by businesspeople and traders to process transactions, including receiving and making payments. Cheques have made commercial transactions more efficient. Banks typically do not offer interest on current account deposits because funds are withdrawn frequently, making them unsuitable for lending.
   2. Saving Account Deposits: Savings accounts also allow withdrawals on demand and support cheque withdrawals. However, banks place certain limits on how much and how often money can be withdrawn within a specific time frame. These limits may be relaxed in practice by some banks. A minimum balance is generally required to maintain cheque-writing privileges on such accounts.
   3. Fixed Deposit Accounts: These accounts are used to deposit funds for a fixed term, such as 6 months, 1 year, 2 years, 5 years, or longer. Unlike other accounts, fixed deposits are not accessible on demand, and cheque withdrawals are not available. Also called time deposits, the funds cannot be withdrawn before the term ends. For example, if a person makes a fixed deposit for 2 years, the funds are legally and technically locked in until the full 2-year period ends.