Definition: Banks thrive on three accounts based on commodity and business needs.
- Safety needs
- Borrowing needs
- Debt clearing needs
Bank accounts satisfy all these three needs of an individual or a businessman.
The bank account can be defined as a facility provided to the accountholder to deposit his money with the bank and withdraw it whenever he needs it. He may use the account to borrow and or settle his debts through cheques.
Types of Bank Accounts
Commercial banks offer its clients a variety of accounts to be opened with them. This variety facilitates the person to open that account which suits his needs
The following accounts are the types:
- Savings account
- Current account
- Fixed deposit account
- Home savings account
1. Savings Account: Savings account is offered to the public to encourage their small savings. Those who open it include students, salaried persons and small traders. These small savings by individuals constitute a huge amount at the bank. The account is subject to zakat in Pakistan.
It can be opened with as minimum as five rupees. But in practice banks demand at least one thousand rupees to open it. The accountholder can withdraw cash only twice a week. The upper limit of the amount of a cheque is Rs. 15000/=. For the amount above this limit bank requires an advance notice of one week. The conditions are aimed at to discourage withdrawals and encourage savings. Banks offer interest or profit on this account. If the balance falls below the required minimum level, the bank imposes a certain charge on the accountholder.
2. Current Account: Current account is operated by businessmen. Earlier it could be opened with a minimum of five hundred rupees but now a minimum of two thousand is needed. Even some banks require five thousand rupees to open it. It can be operated any number of times a day. Unlike savings account there is not upper limit of the withdrawal. This account serves the businessman as if his cashier is sitting at the bank and dealing in his cheques. A nominal interest may be offered on the balance of account. The account is not subject to zakat. Here too, if the balance falls below a certain sum, the bank fines the accountholder at a specified rate.
3. Fixed Deposit Account: This account is opened for a definite period of time without expiry of which the amount cannot be withdrawn. The rate of interest is higher than that of savings account. The greater the period for which money is deposited the higher the interest rate is offered. The period ranges from three month to ten years. It is usually operated by widows, pensioners, salaried persons, etc to get regular income. In Pakistan, this account is subject to zakat deduction.
4. Home Savings Account: This type of account offers the facility to the accountholder to save money right at home and put it in the locker provided by bank. The key of the locker remains with the bank which sends its officer every week to collect the amount from the locker. Now this type is no longer in practice.
How to Open a Bank Account
The procedure of opening an account with the bank is quite simple and easy as discussed below:
Selection of Bank & Type of Account: Having made up his mind to open a bank account the prospective accountholder will select a bank and its branch and decide on the type of account to open. He will choose one from among savings, current or fixed deposit accounts. Savings account serves the purpose of saving, current account is used for settling business transactions, and fixed deposit is meant for earning regular income.
Application Blank: The bank manager will provide the client an application form to fill in the blanks for getting such information as:
Name, father’s name, address, profession, amount to be deposited, introducer’s data, date, and signature. After receiving the filled-up form, the bank will scrutinize it and allocate an account number.
Reference Card: Along with the application blank, the bank also gives a blank reference card which requires two signatures of the accountholder as a specimen to be kept at the bank. When a cheque is presented at the bank, it matches the signature on the cheque with the one on the reference card. This practice offers safety to the bank and the accountholder as well. The card also provides a space for accountholder’s special instructions.
References: At the time of opening an account the bank requires one or two referees who are already accountholders of the same bank. The referee will sign the name and write his account number in the columns provided in the application blank. This reference ensures the bank’s confidence in the new accountholder.
Allotment of Account Number: After thorough scrutiny of the application form, the bank will allot an account number through which all deposits and withdrawals will be carried out.
Provision of Pay-in-slip: At this stage the account has been opened. Now the bank will supply a pay-in-slip to the account holder who will use it to deposit the money.
The stub, a smaller part of the slip, duly signed and stamped by the bank, will be given back to the depositer which will serve as a proof of deposit. The larger part will be detached and retained by the bank for necessary action and record.
In short, the pay-in-slip is used to deposit the money.
Making Deposit: After having the bank account number allotted and received pay-in-slip the accountholder will fill in the blanks of the slip and deposit the money at the cash counter.
Supply of a Cheque Book: After the first deposit is made, the bank supplies a cheque book that contains upto 25 leaves for savings account, and 25 ore more for current account. Fixed deposit account doesn’t carry cheque books because it is a non checking account.
Excise Duty: Cheque book is supplied after accountholder has paid excise duty imposed by the Government of Pakistan on cheques. This duty was first imposed by president General Yaha Khan in 1970. The duty is paid either in cash or is deducted from the balance of the account. In 2000, the Govt. of Pakistan withdrew the excise duty.
Enclosures: Along with the application blank a photocopy of the identity card of the accountholder should be attached. For identification purpose the bank may ask to enclose a photograph also.