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Deposits & Loans

RBI Grade B · Banking Awareness

Also prepare for:IBPS PO IBPS Clerk SBI PO SBI Clerk

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Core Concept

Read this first — the foundation of the topic

→There are four main types

1. Savings Account: Basic account with low interest (3-4% annually). Minimum balance required. 2. Current Account: For businesses. No interest paid. Higher charges. 3. Fixed Deposit (FD): Money locked for fixed period.

Higher interest rates (5-7%). Cannot withdraw before maturity without penalty. 4. Recurring Deposit (RD): Monthly fixed amount deposited. Good for small savers. LOANS - Core Concept Loans are money given by banks to customers who pay interest. Banks charge higher rates than they pay on deposits

→Main types

1

Principal (P) = Rs 50,000

2

Rate (R) = 6% per annum

3

Time (T) = 2 years

4

Simple Interest = (50,000 × 6 × 2) ÷ 100 = Rs 6,000

5

Maturity Amount = Principal + Interest = 50,000 + 6,000 = Rs 56,000 Worked Example 2: EMI Calculation Home loan of Rs 10,00,000 for 20 years at 8% annual interest. Find monthly EMI.

1

P = Rs 10,00,000

2

R = 8% annually = 8÷12 = 0.67% monthly = 0.0067

3

n = 20 years = 240 months

4

EMI = 1000000 × 0.0067 × (1.0067)^240 ÷ [(1.0067)^240 - 1]

5

EMI = Rs 8,364 (approximately) Shortcut #2 - Quick EMI Estimation For rough EMI calculation: Loan Amount ÷ 100, then multiply by factor 8% for 20 years: Factor = 0.84 9% for 15 years: Factor = 1.01 10% for 10 years: Factor = 1.32 #1 COMMON MISTAKE Students confuse Simple Interest with Compound Interest in FD calculations. Most bank FDs use Simple Interest, NOT Compound Interest. Always check the question carefully. Banks mention specifically if it's compound interest. Shortcut #3 - Deposit Types Memory SCFR Rule: Savings-Current-Fixed-Recurring Interest order: Fixed > Recurring > Savings > Current (zero) Liquidity order: Current > Savings > Recurring > Fixed

🔑 Key Points

Banks earn profit from interest rate difference between deposits and loans
Fixed Deposits give highest interest but money is locked for specific period
Current accounts are for businesses and earn zero interest
Personal loans have highest interest rates as they are unsecured
Formula: Simple Interest = (P × R × T) ÷ 100
EMI Formula: P × R × (1+R)^n ÷ [(1+R)^n - 1]
72 Rule: Years to double money = 72 ÷ Interest Rate
Home loans have lowest rates because property acts as security
Recurring deposits require monthly fixed payments unlike Fixed deposits
Premature FD withdrawal attracts penalty of 0.5-1% interest reduction

📌 Exam Facts

Minimum FD amount in most banks is Rs 1,000
Current account requires minimum balance of Rs 10,000-25,000 in most banks
Savings account interest is calculated daily and credited quarterly
Senior citizens get 0.5% extra interest on Fixed Deposits
RBI allows banks to set their own deposit and lending rates since 2011
Tax Deducted at Source (TDS) on FD interest above Rs 40,000 annually
Home loan maximum tenure is typically 30 years in Indian banks
Personal loan maximum amount is usually 10-15 times monthly salary

🚀 60-Second Revision

Remember: FD gives highest deposit interest, Current account gives zero
Formula: SI = PRT/100, Use 72 rule for doubling time
Trap: Most FDs use Simple Interest, not Compound Interest
Remember: Secured loans (home/car) have lower rates than personal loans
Key fact: TDS applies on FD interest above Rs 40,000 per year
Remember: EMI depends on Principal, Rate and Tenure - higher tenure means lower EMI
Important: Senior citizens get extra 0.5% interest on deposits

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