Question

Explain two methods of accepting deposits by the commercial banks.

Answer 1

Commercial banks accept deposits in different ways. Here are two common methods:

1. Demand Deposits: These deposits can be withdrawn by the depositor at any time through cheques. There is no limit on the amount or number of withdrawals. These accounts are typically used by traders, business people, and industrialists for making payments. Banks do not pay interest on these deposits; instead, depositors might have to pay the bank for the services provided.

2. Savings Deposits: These are also payable on demand, but the bank places a limit on how much and how often money can be withdrawn. For example, a bank may allow only five cheque withdrawals per month. Savings accounts usually earn a small amount of interest and are typically used by households with extra cash for short-term savings.