Deposits, Savings, Current and Term Deposit Products
Deposits, Savings, Current and Term Deposit Products
This domain tests product features, interest mechanics, insurance and tax treatment. Expect numerical questions on maturity, premature closure and TDS thresholds.
Product rules
- Savings deposits: interest rate is deregulated; interest is calculated on the daily balance and credited quarterly; minimum balance rules vary by bank and are waived for BSBDA.
- Current deposits: no interest; designed for business liquidity; banks may allow overdraft.
- Fixed deposits: fixed sum, fixed tenure, fixed rate; premature withdrawal usually attracts a penalty; loan against FD is possible.
- Recurring deposits: fixed monthly instalments; maturity value depends on the rate and timing of each instalment.
- DICGC: insures deposits up to ₹5 lakh per depositor per bank, covering principal and interest.
- Unclaimed deposits: balances unclaimed for 10 years are transferred to the Depositor Education and Awareness Fund; UDGAM is RBI's search portal.
- Tax: interest is taxable; TDS under Section 194A applies above the threshold, which Finance Acts revise; senior citizens have a higher threshold.
Worked example
₹1,00,000 is placed in a fixed deposit at 7% p.a. for two years with quarterly compounding. Quarterly rate = 7/4 = 1.75%. Maturity = 100000 × (1.0175)^8 = 100000 × 1.14888 = ₹1,14,888. Interest is ₹14,888, not ₹14,000, because interest is compounded quarterly. If withdrawn after one year, the bank may pay the applicable rate less a penalty.
Traps
- DICGC cover is per depositor per bank, not per account.
- Current accounts earn no interest.
- Savings interest is credited quarterly but calculated daily.
- Premature FD closure can reduce the rate, not merely add a flat fee.
- TDS thresholds change; do not memorise an outdated figure without checking.