by Bank deposits are funds placed by individuals or businesses into bank accounts for safekeeping and financial transactions. These deposits serve as a primary source of funds for banks, enabling them to provide loans and other financial services. Bank deposits are classified into Demand Deposits, Term Deposits, and Special Deposits, each serving different purposes.
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Demand Deposits
Demand deposits are bank deposits that can be withdrawn at any time without prior notice. They offer high liquidity and are primarily used for daily transactions. Examples include savings accounts and current accounts. Savings accounts earn interest, whereas current accounts are mostly used by businesses for frequent transactions and do not earn interest. Demand deposits allow easy access to funds through ATMs, checks, or online banking. Since they offer high liquidity, banks maintain reserves to meet withdrawal demands. However, interest rates on savings accounts are relatively low compared to term deposits.
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Term Deposits
Term deposits, also known as fixed deposits (FDs) or time deposits, require customers to deposit money for a fixed period, ranging from a few months to several years. These deposits offer higher interest rates than demand deposits since the funds remain locked in for a specified duration. Early withdrawal is possible but may result in a penalty. Term deposits provide banks with stable funds for lending and investment. They are a preferred investment option for risk-averse individuals due to guaranteed returns. The interest rate depends on the deposit tenure, with longer durations generally offering higher rates.
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Special Deposits
Special deposits cater to specific financial needs and come with unique features. Examples include recurring deposits (RDs), tax-saving deposits, senior citizen deposits, and foreign currency deposits. Recurring deposits allow customers to deposit a fixed amount monthly, earning interest over time. Tax-saving deposits help individuals avail tax benefits under the Income Tax Act. Senior citizen deposits offer higher interest rates for retirees. Foreign currency deposits are designed for Non-Resident Indians (NRIs) to hold funds in foreign currencies like USD, GBP, or EUR. Special deposits often have restrictions on withdrawal and offer customized benefits based on depositor requirements.
