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What are the different kinds of bank accounts?

What are the different kinds of bank accounts?
KINDS OF BANK ACCOUNTS

A bank provides the facility to open the different kinds of deposit accounts considering the need of all groups in the society. There are four kinds of bank accounts generally used in the modern banking system which discussed below in detailed

1. CURRENT ACCOUNT OR DEMAND DEPOSITS The Current accounts are generally opened for settling business transactions, which basic characteristics are as follows.

FREE FROM WITHDRAWAL UPPER & TIME LIMITATIONS: The amount deposited in the account are payable on demand that is why it is also called as demand deposits. There is no upper and time limit of the withdrawal.

THE HIGHEST AMOUNT FOR OPENING AN ACCOUNT: The amount for opening a current account is higher than other accounts.

INTEREST-FREE OR NOMINAL INTEREST: The bank generally does not pay interests on current accounts but nowadays a very nominal amount of interest is given.

CREDIT FACILITY: The banks also give credit facility in the form of over drafting.

BANK CHARGES: A bank charged definite amount every month called incidental.

2. FIXED ACCOUNT (TIME DEPOSITS OR TERM DEPOSITS)

These accounts are called time or term deposits because the money deposits in this account can be withdrawn after the passage of time for which it was deposited. Although this period may vary between 3 to 5 years but generally the money is deposited for one year in these accounts. Generally these types of accounts are opened by middle class or salary class people for cultivation of savings. Its basic characteristics are as follows

HIGHEST RATE OF INTEREST: In these kinds of accounts, the highest interest is paid. The interest rate not only depends on the size of the deposits but also on the duration for which they are made. The longer the duration the higher will be the interest rate.

LIMITATIONS FOR WITHDRAW AND DEPOSITS: A definite sum of money is deposited into this account for a fixed period. The period of this time is from three months to five years. Regular withdrawal and deposits are not allowed.

WITHDRAW BEFORE MATURITY: Withdrawn before maturity naturally leads to financial penalties i.e. deduction from the principle and low rate of interest.

CONTRACT: It is a contract between banker and customer for a fixed period of time.

HIGHER CREDIBILITY: The depositors can take a loan from the bank on the security of the receipt.

3. SAVING ACCOUNT The main object of this kind of account is to encourage saving among the people. They have limited means, wage earners or lower class people who want to build up their small personal saving for certain unforeseen circumstances and earning income through interest. The basics characteristics of saving accounts are.

• A saving account can be opened with a very small amount.

• The depositor is free to make deposits but has a restriction for withdraw of limited amount are allowed twice a week.

• The customers have to give a notice of about 2 weeks before the withdrawn of a large amount.

• Service charges are charged by bank.

• The rate of interest is not as high as in fixed account. Return is paid at a flexible rate calculated on six monthly bases.

4. PROFIT AND LOSS SHARING (P.L.S)

Introduction of interest-free banking system created revolution in the banking history of Pakistan and interest-free accounts are introduced which called profit and loss sharing accounts. The amount deposited in these accounts is invested in interest-free businesses on the basis of profit and loss sharing. The basic characteristics of profit and loss sharing are:

ISLAMIC PRINCIPLE: The foremost quality of this account is that it is based on profit and loss system, Principle of “Mushaira”. In this system, parties are combined their money skills and share profit and loss in pre-agreed ratio earned by capital.

PROFIT AND LOSS SHARING ON SIX MONTH BASIS: In P.L.S accounts if there is a profit or a loss it is shared in the agreed ratio and it is given or deducted on six monthly bases.

INTEREST FREE: In P.L.S account is there is no concept of interest. Account can be opened with Rs 100. In the saving money withdrawn not more than eight times a calendar year

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