Banking Operations and Types of Accounts
This domain tests account types, the paperwork behind a valid transaction, and the day-to-day operations a bank branch performs.
Account types
Savings accounts suit individuals, earn interest on the daily closing balance and carry withdrawal limits. Current accounts are for businesses, allow unlimited operations and earn no interest. Fixed deposits are for a fixed term at a fixed rate, with a penalty for premature closure. Recurring deposits take a fixed monthly instalment and pay maturity value with interest. BSBDA (Basic Savings Bank Deposit Account) is a no-frills account with no minimum balance.
Operational rules
Account opening requires KYC - officially valid documents for identity and address, photograph, and a nomination option. A cheque is valid for 3 months from its date; it must carry the payee name, amount in words and figures, drawer's signature and correct crossings (general, special, account payee). Endorsement transfers rights. Stop-payment instructions must be in writing/authenticated. A dishonoured cheque for insufficient funds attracts Section 138 of the Negotiable Instruments Act, 1881.
Worked example
A savings account at 4% p.a. holds ₹50,000 for 10 days and ₹30,000 for the remaining 21 days of a 31-day month. Interest = (50,000 × 10/365 × 0.04) + (30,000 × 21/365 × 0.04) = 54.79 + 69.04 = ₹123.83. Reasoning: savings interest uses the daily product method, so each balance is weighted by the days it was held, not by the month-end figure.
Traps
Quoting the month-end balance for savings interest; treating a current account as interest-bearing; ignoring the 3-month cheque validity; and forgetting that an account payee cheque cannot be encashed by a third party.