Bank, Bank Accounts and its Types

In Crowther’s words, “A bank is a firm which collects money from those who have it spare. It lends money to those people who require it.”

In the words of Mr. Parking. “A bank is a firm that takes deposits from households and firms and makes loans to other households and firms.”



Bank Accounts

A bank is a financial institution. Deposit accounts are its main source of income or funds. In order to attract money, it offers different types of attractive facilities to its customers according to their requirements and economic status. The banks in Pakistan and some other countries mainly offer the following types of accounts.

  • Current Account
  • Profit and loss sharing Account (PSL)
  • Fixed OR term Deposit Account
  • Foreign Currency Account

Current Account

Every commercial bank upholds current accounts for its customers. A current account is a running account that is continuously in operation by the customers on all the working days of the bank. The customers can draw the current deposits without earlier notice to the bank. The bank has to honor the cheques provided they are within the limits of the accounts. Customers who need a liquid balance maintain current payments in banks.

In short, in a current account, the banker incurs an obligation to honor all cheques drawn by the customer so long as there is enough money to the credit of the customer. The obligation may be extended by an agreement to the amount of overdraft agreed upon between the banker and the customer.

The banks do not generally pay any interest on these deposits as they can be withdrawn without notice. The bank here acts as the custodian of money. It cannot employ these funds due to fear of withdrawal. It has to keep a higher reserve ratio to meet the demand liabilities.

Profit and loss sharing Account

Profit and loss sharing (PLS) is the method used in Islamic banking to accomplish the prohibition of interest. The Islamic solution commonly referred to as Profit and Loss Sharing suggests an equitable sharing of risk and profits between the parties involved in a financial transaction.

Profit and Loss Sharing refers to Sharia-compliant forms of equity financing such as Mudarabah and Masharakah.

Sharing of risk and profits between the parties. Under the profit and loss account, Debtors share profits and losses with their banks, and banks share profits and losses with their depositors.

Fixed OR Term Deposit Account

A fixed or term deposit account is a major source of funds for a commercial bank. Fixed or term deposit as the name implies is a deposit that kept with is the bank for a fixed period specified in advance. The percentage of interest on term deposits is higher than that of saving deposits.  The longer the duration for which the amount is kept with the bank the higher the rate of interest and vice versa:

The fixed deposits are kept in the bank by the customer to earn interest. At the maturity of the loan, the bank pays the principal amount along with interest of the stipulated period to the depositors. The money kept in a term deposit is thus a safe investment for the customers.

Foreign Currency Account

“An account kept in a foreign bank in the currency of the state in which the bank is situated.”

The State Bank of Pakistan has introduced a number of reforms in foreign exchange control in the country. The main purpose of introducing the various reform is to strengthen the foreign exchange reserve hover around 14 billion dollars and are only sufficient to cover the import bill of the country for a few weeks only.

Joint Account

A joint is a special bank account that is opened in the name of two or more persons. For the drawing of the amount, all the persons in whose name the account stands should sign the cheque. However, if the parties like, by contract they can allow any one of them to draw on the joint account without the consent or signature of the other. On the death of either party, the bank allows the survivor to draw any balance standing to the credit of the joint account.

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12 thoughts on “Bank

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