Various bank accounts and their operations

A current account is a type of bank account offered mainly by commercial banks, mainly used by businessmen, companies, and organizations for frequent and easy access to funds.

Features of a current account

i. Minimum Initial Balance Requirement: The customer must deposit a minimum amount when opening the account, as specified by the bank.

ii. Unlimited Withdrawals: Withdrawals are allowed at any time and up to the full balance available in the account.

iii. Free Deposits: An account holder can deposit any amount at any time through various means like cash, cheques, drafts, and postal orders.

iv. Provision of Cheque Book: The bank provides the account holder with a cheque book to facilitate easy payments and fund transfers.

v. Issuance of Monthly Bank Statements: The bank provides a detailed monthly statement showing all transactions made during the period.

vi. No Interest Earned: Generally, no interest is paid on balances in a current account unless otherwise agreed with the bank.

vii. Overdraft Facility: Sometimes, banks allow account holders to withdraw more money than they have in their accounts through overdraft arrangements.

Paying-in slips are documents used when depositing money into a current account. They serve as evidence that the customer has deposited a certain amount into the account at a specific time.

Details required on a paying-in slip

1. Depositor's name or signature
2. Date of deposit
3. Amount deposited
4. Denominations of cash
5. Details of cheques or other instruments being deposited

Before a person can open a current account, he or she must provide the bank with certain important information:

i. Name, Address, and Occupation: The applicant must clearly state his or her full name, residential address, and occupation.

ii. Two Referees: Referees should be either existing bank customers or employees who can confirm the applicant's financial reliability and creditworthiness.

iii. Signature Card: The applicant must provide a specimen signature on a signature card, which the bank will use to verify transactions.

iv. Issuance of Account Number: Once approved, the bank provides an account number to the customer.

v. Provision of Cheque Book: Finally, the customer is given a cheque book to start making transactions.

A savings account is a deposit account available at both commercial banks and savings banks, meant to encourage people to save money securely while earning interest.

Features of a savings account

i. Minimum Initial Deposit: The customer must deposit at least a minimum amount when opening the account, as set by the bank.

ii. Minimum Balance Requirement: A minimum balance must be maintained in the account at all times.

iii. Flexible Deposits: Money can be deposited into the account at any time, and in case of post office savings accounts, deposits can be made at any branch countrywide.

iv. Limited Withdrawals: Withdrawals are usually limited to once per week to encourage saving habits.

v. Notice for Large Withdrawals: A notice of about seven (7) days must be given for larger withdrawals exceeding a certain amount.

vi. Passbook Provided: The customer receives a passbook, which must be presented whenever making deposits or withdrawals. No cheque book is given.

vii. Interest Earned on Deposits: Savings account holders earn interest on the money held in their accounts.

viii. Personal Withdrawals Only: Withdrawals must be made by the account holder personally; third-party withdrawals are not allowed.

ix. Countrywide Access (Post Office): In case of post office savings, account holders can withdraw from any branch within the country.

A fixed deposit account is a special type of savings account where money is deposited for a fixed period and cannot be withdrawn until the period ends without prior notice.

Features of a fixed deposit account

i. Minimum Deposit Requirement: A fixed deposit account must be opened with at least a minimum amount set by the bank.

ii. Fixed Period: The money remains locked for a specific period (e.g., 6 months, 1 year), agreed upon at the time of deposit.

iii. High Fixed Interest Rate: Fixed deposit accounts offer a higher interest rate than savings or current accounts.

iv. No Withdrawals Before Maturity: Funds cannot be withdrawn before the expiry of the agreed period without heavy penalties.

v. Ideal for Large Sums: Fixed deposit accounts are suitable for customers who have large sums of money not needed for immediate use.

vi. Notice Before Withdrawal: If early withdrawal is necessary, notice must be given to the bank, and sometimes penalties or loss of interest may apply.

1. Interest offered: One should consider the interest enjoyed from a particular bank account. Fixed deposit account offers a high interest rate compared to others.
2. Ease of withdrawal: A current account is the best for easy withdrawal of money. One can write an open cheque in someone's name and withdraw the money across a bank counter. It is not easy to withdraw money from fixed deposit accounts, unless the period has matured.
3. The need to save: Those with a major need of saving at regular intervals can use a savings account. A savings account may restrict withdrawals unlike a current account where one may withdraw all the money in the account.
4. Ability to transfer money: Money transfer is very easy with a current account. A person with a current account can give a cheque to another with an account in a different bank and money will easily be transferred to the payee's account through the bank clearance system.
5. Security: It may not be possible to forge and withdraw money from a fixed deposit account since withdrawals are only restricted to a particular period known as the maturity date, which remains a secret to the account holder. Cheques can easily be forged unless they are fully crossed.
6. Possibility for loans: One should consider the possibility of getting loans from the bank. A current account holder can easily get loans from the bank compared to other accounts. This is because the bank can easily monitor his transactions with the bank and determine whether he is capable of handling the loan effectively.
7. The amount involved: One should consider the amount of money available to open a bank account. A savings account is the best for small amounts. Some banks in Uganda require only 10,000/= to open a savings account yet they may require about 200,000/= for a current account so large amounts may be saved under current or fixed deposit account.
8. Allowance for overdrafts: One can withdraw more than he has on a current account this is referred to as an overdraft. Overdrafts are not extended to savings account holders and fixed deposit holders.
9. Possibility of paying many people: For an organization which needs to pay several people using a bank, a current account is the best. Several people can be paid using only one cheque with a list showing how much to pay to each person named. A credit transfer system or a standing order may call for this method of paying. It may not be possible to pay several people using a savings account or a fixed deposit account.
10. Run on the bank: This is a situation when many bank customers wish to withdraw their money from their accounts. This may be due to loss of confidence of customers in that particular bank or due to great demand for money at a particular period, for instance when parents need money for school fees, or at big days like Christmas, Idd day and others. Also, should people suspect the closure of a particular bank by the central bank, they may rush to withdraw their money from that bank.