Wednesday, August 18, 2010

Basic Banking Products and Services

One of the most important services of any banking institution are bank deposits which may be opened by an individual, group of individuals, business organization or any government entity in the form of either a demand deposit, time deposit, savings deposit, NOW account and the ATM.  The currency to be deposited may either be in local and foreign currencies.





Demand Deposits.  This kind of deposit is also known as current account or checking account.  They are withdrawn only through the use of a depositor's check.  They are deposits payable on demand to the bearer of the check upon the order of the depositor.  Money deposited in this kind does not earn any interest although some banks have special arrangements with their demand deposits.

The checking account is considered the most effective and convenient way of effecting payment on the part of the depositor which is done by means of a check.  Under this account, the bank requires the depositor to maintain a certain minimum balance on his deposit.  The bank charges a fee when the depositor's account falls below the required minimum balance.  In some commercial banks, this minimum balance may be waived, but the checkbooks cost more.  

Bank statements are sent to depositors for the purpose of reconciling their balances with that of the bank.  The statement shows total deposits and withdrawals made and any bank charges or deductions on the account effected by the bank that the depositor may not be aware of.

Time Deposit.  In this kind of deposit, a time certificate of deposit is issued by the bank and is non-negotiable in nature.  It is withdrawn at a stipulated date to earn the stated interest.  The rate on interest vary from one month to any number of months up top one year.  The deposit may be withdrawn or preterminated prior to its maturity but the stipulated interest rate shall be treated as similar to a savings deposit and earns the interest from the date it was opened to the date of actual withdrawal..  Partial withdrawals are not allowed in this kind of deposit.

However, the bearer of the time deposit certificate is allowed to borrow an amount less than its time deposit  within the period of maturity at the bank's rate of interest.  The certificate may be endorsed by the bearer to the bank as security.  Interest is deducted in advanced.  In the event the depositor fails to settle the debt, it shall be deducted from his time deposit account.

Savings Deposit.  This account may be opened to earn interest, accumulate funds and for safekeeping purposes.  Interests earned in savings deposit accounts are lower than time deposits.  Most banks require a minimum cash balance for this deposit to earn interest.  Below the minimum balance requirement, no interest may be earned and the bank charges a service fee to cover maintenance of the said deposit.

The amount of deposit is evidenced by a savings passbook.  It is presented to the bank by the depositor together with a deposit or withdrawal slip whenever deposits and withdrawals are made.  No bank statements are sent to the depositor in this type of account.  The passbook shows all transactions made and interests earned by the deposits.

More banking products and services may be read here.

Reference:  Money, Credit and Banking in the Philippine Financial System
                  by:  Zacarias M. Ronquillo

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