Banking plays a crucial role in managing personal and corporate finances. With multiple account types and financial instruments available, understanding them can help individuals and businesses optimize their financial resources. Whether you are a banking professional, a JAIIB/CAIIB aspirant, or simply someone interested in banking fundamentals, this guide is for you.
👉 Before we dive in, watch this video for a complete breakdown:
Types of Bank Deposits: Demand vs Time Deposits
Demand Deposits: These are funds that can be withdrawn anytime without prior notice, such as Savings and Current accounts. Demand deposits provide high liquidity, making them ideal for everyday transactions.
Time Deposits: These include Fixed Deposits (FDs) and Recurring Deposits (RDs), where funds are locked for a specific period. Premature withdrawal is allowed but incurs an interest loss. These deposits offer higher interest rates compared to demand deposits, making them a preferred option for long-term savings.
Key Differences:
- Liquidity: Higher in demand deposits, lower in time deposits.
- Interest Rates: Higher in time deposits, minimal in demand deposits.
- Purpose: Demand deposits cater to daily transactions, while time deposits focus on long-term savings.
- Risk: Demand deposits are risk-free, whereas time deposits may incur losses upon premature withdrawal.
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NRI Banking: NRO, NRE, and FCNR Accounts
What are NRO, NRE, and FCNR Accounts?
For Non-Resident Indians (NRIs), special bank accounts facilitate financial management in India while residing abroad. Understanding the differences among these accounts helps in choosing the right option.
NRO Account: Used to manage income earned in India (e.g., rent, dividends). It is maintained in INR and is subject to TDS.
NRE Account: Used for income earned abroad, freely repatriable, and tax-free in India.
FCNR Account: Fixed deposit account in foreign currency to avoid exchange rate risks.
Key Takeaways:
- NRO accounts are for local earnings, while NRE is for foreign income.
- NRE accounts offer tax-free interest, whereas NRO accounts have a 30% TDS.
- FCNR accounts are useful for NRIs who want to save in foreign currency.
- Funds in an FCNR account remain immune to exchange rate fluctuations.
Conclusion
Understanding banking fundamentals like different types of deposits, NRI accounts, and merchant banking helps you make better financial decisions. Whether you’re preparing for a banking exam or simply expanding your knowledge, this information is crucial.
We encourage you to explore further and implement these learnings in real-life financial decisions.
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