Types of Deposits

Intermediation is the primary function of banks and mobilization of deposits is the first step to intermediation. Deposits constitute the main source of funds for banks and deposits contribute more than 80 percent of the resources in banks. Through mobilization of deposits, banks are responsible for the following social functions:

1. Canalizing the savings of the community for productive uses.
2. Encouraging and facilitating savings by the members of the community to ensure their well-being. Banks mobilize the savings of the community by offering savings products to suit the needs of various types of savers. The basic concerns of savers are safety, liquidity and returns.

A return is a function of safety and liquidity. Liquidity refers to the ease with which a deposit can be withdrawn or be available when a customer, also called a depositor wants it. Higher the level of safety and liquidity, lower is the return and lower the level of safety and liquidity, higher is the return.

Banks are considered to be the safest institutions for keeping peoples’ savings and enjoying their trust, which enables banks to attract deposits at relatively cheaper rates compared to other financial intermediaries. Similarly, banks have large resources and therefore, are able to allow withdrawal of TDs whenever the customer wants to withdraw. No other financial intermediary is in a position to offer such liquidity.

Types of Deposits

Banks accept   various types of deposits. These types are:

Demand deposits: Are repayable on demand.

Fixed deposits: Are repayable on expiry of the period, also called the term for which the deposits have been made. (Change to Term Deposits)

Recurring deposit: Help people with regular incomes to save a fixed amount every month and at the same time earn interest at the rate applicable to a Term deposit (TD).