Management of Deposits of Commercial Banks

Bank deposits consist of money placed into banking institutions for safekeeping. These deposits are made to deposit accounts such as savings accounts, checking accounts, and money market accounts. The account holder has the right to withdraw deposited funds, as set forth in the terms and conditions governing the account agreement.

The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank.

Deposits of banks are classified into three categories:

(1) Demand deposits that is repayable on customers’ demand. These comprise the following:

• Current account deposits
• Savings bank deposits
• Call deposits

(ii) Term deposits that are repayable on maturity dates as agreed between the customers and the banker. These comprise the following:

• Fixed deposits
• Recurring deposits

(iii) Hybrid deposits or flexi deposits, which combine features of demand and term deposits. Lately, these deposits have been introduced by some banks to satisfy customers’ financial needs and convenience and are known by different names in different banks.

Demand and time deposits of a bank constitute its demand and time liabilities that the bank reports every week (on every Friday) to the RBI.

Types of Bank Deposits

Current (Demand Deposit) Account

A current account, also called a demand deposit account, is a basic checking account. Consumers deposit money and the deposited money can be withdrawn as the account holder desires on demand. These accounts often allow the account holder to withdraw funds using bank cards, checks, or over-the-counter withdrawal slips. In some cases, banks charge monthly fees for current accounts, but they may waive the fee if the account holder meets other requirements such as setting up direct deposit or making a certain number of monthly transfers to a savings account.

Savings Accounts

Savings accounts offer account holders interest on their deposits. However, in some cases, account holders may incur a monthly fee if they do not maintain a set balance or a certain number of deposits. Although savings accounts are not linked to paper checks or cards like current accounts, their funds are relatively easy for account holders to access.

In contrast, a money market account offers slightly higher interest rates than a savings account, but account holders face more limitations on the number of checks or transfers they can make from money market accounts.

Call Deposit Accounts

Financial institutions refer to these accounts as interest-bearing checking accounts, Checking Plus, or Advantage Accounts. These accounts combine the features of checking and savings accounts, allowing consumers to easily access their money but also earn interest on their deposits.

Certificates of Deposit/Time Deposit Accounts

Like a savings account, a time deposit account is an investment vehicle for consumers. Also known as certificates of deposit (CD), time deposit accounts tend to offer a higher rate of return than traditional savings accounts, but the money must stay in the account for a set period of time. In other countries, time deposit accounts feature alternative names such as term deposits, fixed-term accounts, and savings bonds.