What is a Bank account and why is it needed?

A bank account is a financial account maintained by the bank on behalf of a customer. It is an arrangement whereby a customer can deposit and withdraw money, in a physical form or in a digital form. By opening a bank account, a customer entrusts the bank to keep his/her money safe. 



A bank account serves a lot of purposes for anyone, the three most important one include:

Safety: 
                          Banks provide safety to customers. Keeping large amounts of cash at home is susceptible to risks such as stealing or fire. However, banks are safe and well regulated. A certain amount of money is automatically insured against loss by the Government. Even if a bank is robbed or goes bankrupt, customers receives the insured amount.
Convenience: 
                                                      Handling a bank account is very easy. All payments can be made through cheque or online transfer and money can be withdrawn through a debit card or from the branch itself

Savings: 

                                Bank accounts help in developing a habit of savings among individuals. Bank accounts are of various types, some of which pay interest. Instead of keeping cash idle at home, keeping it in the bank can help make the money grow.

Types of bank accounts in India?

bank accounts are of two types:

1. Deposit Accounts and

2. Loan Accounts

1. Deposit Accounts

Deposit Accounts are accounts where customers deposit money at a bank. In return, the bank may or may not pay interest on the money.

There are three types of Account 

1. Savings Bank Accounts: As the name suggests, these accounts are designated to help people save. 

People can deposit money in these accounts, which earn an annual rate of interest. The Reserve Bank of India (RBI) provides a guidance on the rate of interest that the banks can offer, however, each bank uses its own discretion to decide the rate of interest that it will offer to its customers.

2. Current Accounts: The nature of banking requirement differs considerably between different kinds of users. Businesses need to deposit and withdraw cash regularly, sometimes several times a day.

 This results in a continuous movement of money in business accounts. Moreover, businesses need facilities such as overdrafts, remittance and others which individuals may not require. This is where a Current Account comes in. Current Accounts are offered to business entities so that they can conduct their business transactions with ease.

3. Fixed Deposits: These are deposit where customers pledge to keep a certain sum of money with the bank for a certain time period and the bank, in turn, promises to pay them a fixed sum of money as a return. 

Fixed deposits can be created for a time period as low as 7 days to as high as 10 years. The percentage of interest depends on the time period for which the money is fixed with the bank. The rates of fixed deposits for the same tenure may vary from one bank to another. Traditionally, fixed deposits have been the most popular way of saving money in India. 



2. Loan Accounts

As the name suggests, loan accounts are those where a bank lends money to its customers and charges a certain interest in return. Sometimes these loans are provided for a specific purpose such as home loan to buy a house, car loan to purchase a car or sometimes they are provided with no specific intention in mind such as a personal loans.

Common Guidelines for Opening and Operating Bank Accounts

1. Identity proof such as Aadhar card, PAN card or Passport.

2. An address proof such as Aadhar card or Passport or Voter ID card or Utility Bill.

3. A photo

Mistakes to avoid while opening a bank account

People often take bank account opening too lightly and end up making mistakes which turn out to be harmful in the long run. Here are a few guidelines that one should follow:

1. Customers should always provide an authentic document while opening a bank account. The bank conducts due diligence from time to time. If any document is found to be forged, the bank can freeze the account, in which case the money in the account will become unusable.

2. Customers should ensure the name in the account matches the customer’s original name. A difference of even a letter can be harmful. 

3. Often the bank representative volunteers to fill up the account opening forms. Customers should always check the filled out form before final submission and ensure all the information provided are correct. 

4. Customers should never sign a blank document.