Commercial banks run on public deposits. Some of the common deposits are:

Current Account or Demand Deposits

A current account is an unrestrained form of account. You can withdraw any amount by cheque any time from your current account without giving any notice to the bank. People open current accounts not only for safekeeping of their money but also for using them where cash transactions are not possible.

The transactions are, therefore, carried out through cheques, drafts or electronic transfers. Banks do not offer any interest on this type of account as the deposits in these accounts are repayable on demand without any notice. These accounts are usually used by business class people.

Savings Account

People can use saving accounts to meet their day-to-day spending needs. Savings accounts are normally not very large as they are usually based on personal savings. There are some restrictions on withdrawals from this account. Depositors are allowed to use cheque books and drafts. A savings account carries a lower rate of interest.

Fixed Deposits

As the name suggests, fixed deposits are time bound deposits. You are allowed to decide the term of the deposit from various term options and the rates of interest payable on each type of term. You cannot withdraw money from your fixed deposit account till the date of the maturity of the deposit. The banks pay higher rates of interest on fixed deposit accounts. The longer the term the higher is the rate of interest. Commercial banks take particular interest in fixed deposits because these are their most reliable resource for funding loans to the borrowers. This is because the bankers can lend out this money secure in the knowledge that the borrowers can not demand it back till the agreed period of time. They charge higher rates of interest on loans drawn from this source.

 Loans and Advances

Banks make money by giving loans and advances to individuals and businesses. While the banks offer lower rates of interest on deposits, they charge higher rates of interest on loans. The interest rates on loans depend upon the purpose, term and the mode of repayment.

Loans are sanctioned for specific period or term. There are short term, medium term and long term loans. Short-term loans are usually given for six months to one year. The borrower may withdraw the entire amount in one lump sum or in smaller amounts as and when he needs the amount. Banks charge higher rates of interest on short-term loans.

Medium term loans are available for one to five years while long-term loans are offered for longer periods, usually over ten years.