Important Retail Liability Products

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1. Demand Deposits: An Introduction

Demand deposits are those which can be withdrawn by the depositor at any time without any prior notice. They include Current and Savings Accounts.

2. Current Deposit Account

Main Features

• No interest paid on balances.
• Suitable for businesses with frequent transactions.
• Allows overdraft facilities.

Advantages

• Helps businesses manage liquidity efficiently.
• Enables unlimited withdrawals and deposits.
• Overdraft options available on merit.

Documents Required for Opening Various Types of Current Accounts

• Identity and address proof
• Business registration documents
• PAN Card and GST Registration (if applicable)

Operational Aspects

• Opening: Through KYC and due diligence.
• Transfer: Can be transferred between branches.
• Inoperative Accounts: No operation for 2 years becomes inoperative.
• Closure: On written request or legal directive.

3. Savings Bank Account

Advantages & Importance

• Earns interest on idle money.
• Encourages savings habit.
• Provides ATM, mobile, and online banking.

Eligibility and Operations

• Individuals, minors, senior citizens can open SB accounts.
• Interest is deregulated; banks may offer different rates.
• Minimum balance to be maintained as per bank policy.
• RBI restricts number of withdrawals per month in basic accounts.
• Services: Cheque book, e-banking, standing instructions etc.

4. Time Deposit (FD)

Overview

• Fixed tenure deposits earning higher interest than savings accounts.
• Interest can be cumulative or non-cumulative.
• FDs for minors require a guardian.
• Premature withdrawal possible with penalty.
• Advance can be taken against FDs.
• Renewal and rollover options available.
• RBI mandates treatment of overdue FDs and revised rules apply.

TDS & Form 15G/15H

• Form 15G/15H can be submitted to avoid TDS if eligible.
• Banks must deposit TDS with Income Tax Department promptly.

5. 2 in 1 Account

Combines features of Savings and Fixed Deposit. Auto sweep and reverse sweep facility allows funds to move between accounts automatically based on usage and balance.

6. Recurring Deposit (RD)

• Fixed monthly deposits for a predetermined period.
• Interest similar to FD, paid at maturity.
• Good for disciplined savings.

Mathematical Examples

1. FD Interest Calculation:
   Principal = ₹50,000, Rate = 6% p.a., Time = 2 years
   Interest = (50000×6×2)/100 = ₹6,000
2. Savings Account Interest:
   Average Balance = ₹25,000, Rate = 3.5% p.a., Time = 6 months
   Interest = (25000×3.5×0.5)/100 = ₹437.50
3. RD Maturity Value:
   Monthly Deposit = ₹2,000, Time = 12 months, Rate = 6% p.a.
   Maturity Value ≈ ₹24,735 (Using RD maturity formula)
4. Overdue FD Interest:
   Original FD = ₹1,00,000, not renewed for 6 months, SB interest = 3%
   Interest = (100000×3×0.5)/100 = ₹1,500
5. TDS Deduction:
   Interest earned on FD = ₹12,000, Threshold = ₹10,000, TDS = 10%
   TDS = (12000-10000)×10% = ₹200

Multiple Choice Questions (MCQs)

1. Which of the following is a demand deposit?
   a) Fixed Deposit
   b) Recurring Deposit
   c) Current Account
   d) Term Deposit
   Answer: c
2. Current Accounts are generally opened by:
   a) Salaried persons
   b) Housewives
   c) Businesses and traders
   d) Students
   Answer: c
3. Which account pays no interest?
   a) Savings Account
   b) Current Account
   c) FD
   d) RD
   Answer: b
4. What is the maximum interest rate allowed on Savings Account?
   a) Fixed by RBI
   b) 4%
   c) Deregulated
   d) 6%
   Answer: c
5. Form 15G is submitted to avoid:
   a) Loan
   b) Tax audit
   c) TDS
   d) GST
   Answer: c
6. Recurring Deposit involves:
   a) One-time deposit
   b) Monthly deposits
   c) Daily deposits
   d) Quarterly deposits
   Answer: b
7. Minimum duration of an FD:
   a) 1 day
   b) 7 days
   c) 30 days
   d) 3 months
   Answer: b
8. Overdraft facility is available in:
   a) SB account
   b) FD account
   c) RD account
   d) Current account
   Answer: d
9. Interest on FD is generally:
   a) Lower than SB
   b) Same as SB
   c) Higher than SB
   d) Nil
   Answer: c
10. Who can open a SB account?
    a) Only salaried individuals
    b) Minors
    c) Only NRIs
    d) Only senior citizens
    Answer: b
11. Interest on savings accounts is calculated on:
    a) Minimum monthly balance
    b) Average daily balance
    c) Maximum balance
    d) Opening balance
    Answer: b
12. Current Account becomes inoperative after:
    a) 6 months
    b) 1 year
    c) 2 years
    d) 5 years
    Answer: c
13. What is the nature of a Time Deposit?
    a) Demand Deposit
    b) Callable Deposit
    c) Term Deposit
    d) Liquid Deposit
    Answer: c
14. Which facility is unique to 2-in-1 account?
    a) ATM card
    b) Cheque book
    c) Auto sweep
    d) Locker
    Answer: c
15. Premature withdrawal of FD results in:
    a) Bonus
    b) No change
    c) Penalty
    d) Cash prize
    Answer: c
16. Which form is for senior citizens to avoid TDS?
    a) 15AA
    b) 15H
    c) 15G
    d) 16H
    Answer: b
17. SB Account encourages:
    a) Business expenses
    b) Money laundering
    c) Savings habit
    d) Tax evasion
    Answer: c
18. Overdue FD earns interest at:
    a) FD rate
    b) Savings rate
    c) Zero
    d) Penal rate
    Answer: b
19. Bank deposits TDS to:
    a) RBI
    b) Income Tax Department
    c) GST Council
    d) SEBI
    Answer: b
20. Recurring Deposit tenure is typically:
    a) 1 month
    b) 3 months
    c) 6 months
    d) 12 to 60 months
    Answer: d