Do not lose your hard earned money; always save in a bank account.
Why save in a bank?
Money kept in a bank is safe as banks are regulated and pool the savings for nation-building. Apart from safety, banks do not charge fee for depositing the money. On the other hand, they pay us interest on our deposits, so our money grows in bank.
Putting our money in a bank means we can also use it whenever we need it. The transactions with the banks are transparent. Banks offer lots of other useful services. When we have a deposit account with banks, we can easily get many facilities like loans and remittance facilities at reasonable cost. We can even nominate a person who can claim the money after our death.
What is nomination?
Nomination is a facility that enables a deposit holder to designate an individual, who can claim the amount lying in the bank account in case of death of the account holder. It is always advisable to make nomination in a bank account so that the nominated person can get the amount easily.
Advantages of bank account
- A bank account gives us an identity which is recognized by other government agencies.
- Transactions are transparent in a bank account i.e. we know all the details of deposits, withdrawals, interest, etc.
- Banks are non-discriminatory i.e. rules are same in the bank for similar type of customers.
- Our money in a bank account is safe.
- Banks open savings, recurring and fixed deposit accounts according to our needs and pay interest on deposits.
- We can get our wages/salary directly credited to the bank account.
- We can get all social benefits like MGNREGA wages, pensions etc. directly credited to bank account through EBT (electronic benefit transfer).
- We can deposit or withdraw our money from the bank whenever we need.
- We can take loan from the bank in case of necessity. Banks give loans for productive purposes at reasonable interest rates. If we have a bank account, sanctioning of loans becomes easier.
- We can send remittance through the bank.
What is EBT?
EBT means electronic benefit transfer for credit of social security benefits like MGNREGA wages, old age pension, widow pension, cash transfers in lieu of LPG subsidy, etc.
The amount due to us gets credited to our bank account timely and efficiently without involvement of intermediaries. Thus it avoids the delays and leakages involved in the existing manual system. We can withdraw the money from our bank account as and when we want. We can also avail of other facilities from the bank.
What is remittance?
We can send money to other people staying at distant places throughout the country through the bank. Banks transfer our money from one place to another and from person to person safely, speedily and efficiently. So, if we have a bank account, we can easily transfer money to our child’s account if he is studying in another city. We can also receive money in our bank account from our relatives working at distant places.
What is interest?
Interest is the amount our money earns when we save our money or it is the amount we have to pay when we borrow money in addition to the borrowed amount. The money which we keep with banks is not kept idle. The banks lend this money to other people. Those who borrow money from banks pay some interest.
Say, we deposit Rs. 1,000 with a bank. The bank lends that amount to another person. He pays, say Rs. 100 as a charge to the bank at the end of one year. The bank gives us a share of it, say Rs. 40. This extra income which we get from keeping Rs. 1,000 for one year with the bank is known as interest.
Types of deposit accounts
Banks offer three types of deposit accounts: Savings deposit, Term deposit & Recurring deposit as explained below:
Savings deposit account is for depositing our day to day surplus. We can withdraw our money whenever we need it. We can also get an overdraft (Loan for emergency needs) in our saving account.
Term deposit account is for depositing our money for a fixed period suitable to our needs. This may earn interest at higher rate than saving account, as we deposit money for a pre decided fixed period. We can also withdraw before the due date but in that case we will get less interest.
Recurring deposit account is for depositing an amount periodically say every day or every week or every month for a certain period. This can be used for depositing regular savings.
Source: Financial Literacy Guide, Reserve Bank of India