Banking 101: Accounts, KYC, Balances & More
In the dynamic world of Indian banking, a range of bank accounts serves as your ticket to financial freedom. From savings to seamless transactions, these accounts are the gateway to a world of possibilities. There are five key types of bank accounts in India, each tailored to suit unique financial aspirations.
1.) Savings (including Salary Account): The Savings Account, including the Salary Account, serves as a foundation for financial management, enabling individuals to save, transact, and accumulate funds while earning a nominal interest.
2.) Current Account: Designed primarily for businesses and entrepreneurs, the Current Account facilitates regular transactions without capping the number of withdrawals or deposits, offering convenient cash flow management.
3.) FD/RD Account: Fixed Deposit (FD) and Recurring Deposit (RD) Accounts provide avenues for secure long-term savings and investment, allowing individuals to earn higher interest rates by locking in funds for a specific period.
4.) Loan Account: The Loan Account represents the borrowing side of banking, enabling individuals and businesses to access credit for various purposes, such as personal loans, home loans, business loans, and more.
5.) NRE and NRO Accounts: Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts cater to the financial needs of Non-Resident Indians (NRIs), offering avenues for managing earnings in India and abroad, each with distinct features and benefits.
- The table’s Interest Rates are for illustration. Actual rates may differ.
- There’s another account type known as a ‘Joint Account’, where ownership extends to more than one individual, sharing the same account rather than separate accounts.
- Know Your Customer (KYC)
Any legitimate individual or organization that has opened an account undergoes this process.
This is conducted not just during the account’s inception but is also carried out periodically in adherence to the RBI guidelines.
Eligible KYC Documents :
- Passport
- Voter ID Card
- Driving Licence (DL)
- Aadhaar Letter/Card
- NREGA Card
- Letter issued by the National Population Registry, containing details of name and address.
(There are few more, that can be confirmed on the RBI Website)
Failure to complete KYC could result in the account being suspended or frozen.
Who is an Account Holder?
The individual or entity initiating an account is referred to as the account holder. Upon opening the account, you will receive the Account Number.
- Public banks generally use 11-digit account numbers, while private banks use 12/14-digits.
- Some banks have also started giving custom account numbers (10 digits) like the phone number of the account holder.
- Upon the occurrence of an event affecting the account holder, such as death, the ownership of the account will transfer to the Nominee.
- Common Nominees : Family Members, Spouse, Children, Siblings, Relatives, Friends, Will executioner, any person you trust.
Minimum Balance
The minimum balance in a bank account refers to the lowest amount of funds that must be maintained in the account to avoid certain charges or penalties imposed by the bank.
- Zero Balance Accounts
Zero Balance Accounts (ZMB) refer to bank accounts where the account holder is not required to maintain a minimum balance. These types of accounts allow individuals to open and operate a bank account without the obligation of keeping a specific amount of money in the account. They are beneficial for individuals who might not be able to maintain a minimum balance due to financial constraints, or as an inclusion initiative by banks to offer services to a wider population. ZMB typically provide basic banking services without the burden of maintaining a minimum balance, making banking more accessible to various segments of society.
- Account Balance
An Account Balance (AB) refers to the total amount of funds in a bank account at a specific point in time. It is the sum of all deposits, credits, and any interest earned, minus any withdrawals, debits, fees, or charges incurred on the account. The balance represents the financial position or the available funds in the account and is crucial for tracking expenses, managing finances, and ensuring that sufficient funds are available for transactions or payments. The AB constantly fluctuates as transactions occur, reflecting the current monetary status of the account.
- Usable Balance
Usable Balance (UB) refers to the amount of money available for immediate use in a bank account. It represents the funds that can be utilized for transactions, withdrawals, purchases, or payments without exceeding the account’s overdraft limit or incurring penalties. The UB takes into account pending transactions, holds, or any restrictions on certain funds that might not be immediately available for use. It’s the practical amount you can access and spend from your account, considering any pending or processing transactions.
- Debit
This implies that a certain amount was withdrawn, resulting in a decrease in the account balance.
- Credit
This indicates that a certain amount in rupees has been deposited, leading to an increase in the account balance.
This means credit is good and debit is bad.
- Passbook
It includes all the information related to debit and credit transactions.
- Account Statement
Similar to a passbook, this document compiles debit and credit information and can be periodically downloaded.
Good Practise : Make it a habit to download your monthly account statement and give a good look at all the money coming in and going out through debit and credit entries.
Join our journey of understanding Banking Related Financial Terms, and talk about various other stuff, join Hinotori Writes on Telegram.
| That’s all for now, Folks. Cheers |
