The biggest voice I have been hearing nowadays in India (since Nov 8, 2016, when the Indian Prime Minister Narendra Modi declared Rs. 500 and Rs. 1000 notes as illegal tender of currency from the next midnight i.e. with just 4 hours’ notice) is that it is ‘Unconstitutional’ to Demonetize the currency, especially when there was a limit put on cash withdrawals on the ‘Savings accounts’. So I thought it would be better to understand what it means by ‘Savings Accounts’ or ‘Demand Deposits’
Definition of ‘Savings accounts’
A savings account is an interest-bearing deposit account held at a bank or another financial institution that provides a modest interest rate. Banks or financial institutions may limit the number of withdrawals you can make from your savings account each month, and they may charge fees unless you maintain a certain average monthly balance in the account. In most cases, banks do not provide checks with savings accounts.
Read more: Savings Account Definition | Investopedia http://www.investopedia.com/terms/s/savingsaccount.asp#ixzz4TG5IHZn5 Follow us: Investopedia on Facebook
Savings accounts offer limited use of the funds in the account because they are generally not available for paying bills or buying items directly via checks or debit cards. Some accounts have Internet access, which can be used to move money from the savings account to other accounts, but some savings accounts require the account holder to physically go to the bank in order to deposit or withdraw money.
Courtesy: http://www.livestrong.com/article/58780-definition-savings-account/
These deposits accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have a lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. Till 24/10/2011, the interest on Saving Bank Accounts was regulated by RBI and it was fixed at 4.00% on daily balance basis. However, w.e.f. 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Under directions of RBI, now banks are also required to open no frill accounts (this term is used for accounts which do not have any minimum balance requirements). Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits. From the FY 2012-13, interest earned up to Rs 10,000 in a financial year on Saving Bank accounts is exempted from tax.
Courtesy: http://www.allbankingsolutions.com/top-topics/dep1.shtml
Definition of ‘Demand Deposit’
A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking. In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period of time. M1 is a category of the money supply that includes demand deposits as well as physical money and negotiable order of withdrawal (NOW) accounts that have no maturity period but limited withdrawals or transfers.
Read more: Demand Deposit Definition | Investopedia http://www.investopedia.com/terms/d/demanddeposit.asp#ixzz4TG8EBOqY Follow us: Investopedia on Facebook
A demand deposit is money that you deposit into a bank account from which you can withdraw 'on demand' - at any time without any advance notice to the bank. Common examples of accounts that are often demand deposit accounts include many checking and savings accounts. Keep in mind, however, that not all checking accounts and savings accounts are demand deposit accounts.
Manner of Demand: There are many ways you can make a demand on your bank for the funds deposited in a demand deposit account. You can make your demand upon the bank not only before a bank teller, but also through use of an ATM, use of a debit card, online banking transfers and through drawing a check. In fact, if you look closely at a check, you'll see the words 'pay to the order of' right before the line where you fill in the name of the person you're paying. You are actually demanding that the bank pay the sum of money indicated on the check to the payee identified on the check.
Courtesy: http://study.com/academy/lesson/demand-deposit-definition-lesson-quiz.html
All of the above information is picked ‘as is’ from the links provided and these are not my words. So in Legal / Constitutional terms, Banks are free to put limits on any withdrawals from ‘Savings Accounts’ at any time, including cash transactions. In reality, there is limit placed only on Cash Withdrawals from ‘Savings Accounts’ (Teller and ATMs), while one is free to make any amount of transactions using all other instruments like Cheques, Debit Card swipe at POS, Online Payments (NEFT, RTGS, IMPS) or e-commerce transactions linked to the Savings Accounts. By all legal means, Banks do have the right to limit each of these types of transactions from ‘Savings Accounts’ as well.
Another right of the depositor would be to close the account. For this, the depositor can withdraw or transfer all the balance to another account. The Bank may also use the option of Bank Draft / Banker’s Cheque (Refer: http://www.investopedia.com/terms/b/bank_draft.asp) in case there is no cash available in the concerned Bank for withdrawal. So the depositor’s money belongs to depositor at any time.
Having said all this, I agree that there are real problems in Indian Economy post Demonetization. There are few major issues like,
Definition of ‘Savings accounts’
A savings account is an interest-bearing deposit account held at a bank or another financial institution that provides a modest interest rate. Banks or financial institutions may limit the number of withdrawals you can make from your savings account each month, and they may charge fees unless you maintain a certain average monthly balance in the account. In most cases, banks do not provide checks with savings accounts.
Read more: Savings Account Definition | Investopedia http://www.investopedia.com/terms/s/savingsaccount.asp#ixzz4TG5IHZn5 Follow us: Investopedia on Facebook
Savings accounts offer limited use of the funds in the account because they are generally not available for paying bills or buying items directly via checks or debit cards. Some accounts have Internet access, which can be used to move money from the savings account to other accounts, but some savings accounts require the account holder to physically go to the bank in order to deposit or withdraw money.
Courtesy: http://www.livestrong.com/article/58780-definition-savings-account/
These deposits accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have a lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. Till 24/10/2011, the interest on Saving Bank Accounts was regulated by RBI and it was fixed at 4.00% on daily balance basis. However, w.e.f. 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Under directions of RBI, now banks are also required to open no frill accounts (this term is used for accounts which do not have any minimum balance requirements). Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits. From the FY 2012-13, interest earned up to Rs 10,000 in a financial year on Saving Bank accounts is exempted from tax.
Courtesy: http://www.allbankingsolutions.com/top-topics/dep1.shtml
Definition of ‘Demand Deposit’
A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking. In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period of time. M1 is a category of the money supply that includes demand deposits as well as physical money and negotiable order of withdrawal (NOW) accounts that have no maturity period but limited withdrawals or transfers.
Read more: Demand Deposit Definition | Investopedia http://www.investopedia.com/terms/d/demanddeposit.asp#ixzz4TG8EBOqY Follow us: Investopedia on Facebook
A demand deposit is money that you deposit into a bank account from which you can withdraw 'on demand' - at any time without any advance notice to the bank. Common examples of accounts that are often demand deposit accounts include many checking and savings accounts. Keep in mind, however, that not all checking accounts and savings accounts are demand deposit accounts.
Manner of Demand: There are many ways you can make a demand on your bank for the funds deposited in a demand deposit account. You can make your demand upon the bank not only before a bank teller, but also through use of an ATM, use of a debit card, online banking transfers and through drawing a check. In fact, if you look closely at a check, you'll see the words 'pay to the order of' right before the line where you fill in the name of the person you're paying. You are actually demanding that the bank pay the sum of money indicated on the check to the payee identified on the check.
Courtesy: http://study.com/academy/lesson/demand-deposit-definition-lesson-quiz.html
All of the above information is picked ‘as is’ from the links provided and these are not my words. So in Legal / Constitutional terms, Banks are free to put limits on any withdrawals from ‘Savings Accounts’ at any time, including cash transactions. In reality, there is limit placed only on Cash Withdrawals from ‘Savings Accounts’ (Teller and ATMs), while one is free to make any amount of transactions using all other instruments like Cheques, Debit Card swipe at POS, Online Payments (NEFT, RTGS, IMPS) or e-commerce transactions linked to the Savings Accounts. By all legal means, Banks do have the right to limit each of these types of transactions from ‘Savings Accounts’ as well.
Another right of the depositor would be to close the account. For this, the depositor can withdraw or transfer all the balance to another account. The Bank may also use the option of Bank Draft / Banker’s Cheque (Refer: http://www.investopedia.com/terms/b/bank_draft.asp) in case there is no cash available in the concerned Bank for withdrawal. So the depositor’s money belongs to depositor at any time.
Having said all this, I agree that there are real problems in Indian Economy post Demonetization. There are few major issues like,
- IT and Telecom infrastructure – in order to use online modes of payments including different wallets, you need to have proper network (wired or wireless) enabled by adequate security, which is not there even in the biggest cities (supposed to Smart-cities) in the country
- Availability of POS machines and alternatives (M-swipe et al) – the merchants either do not want to use these devices or not able to get them
- Infrastructure Charges, Convenience Fees, Service Taxes on non-cash transactions (on non-Government sites) – if you want to make payments on any of the non-Government websites, you will see either of these being charged on top of your payable amount, which is not the case for cash transactions (Tax laws, implementations, official’s behaviour are few of the underlying issues)
- Availability of lower denomination currency – after (ideally before) demonetizing Rs. 500 and Rs. 1000, there should have been enough supply of lower denomination currency tenders to the Banks, so that the real needy people do not suffer
- Financial Education to the common people on other instruments of transaction – Banks should really employ few retired people or students to educate the people standing in the queues of Banks and ATMs on how to make cashless transactions and what all alternatives are available. At least this education should reduce the amount of money these people would withdraw in cash (if not convince them to get out of that queue)
- Availability of other legal instruments and mandate as well as incentives to use them – Government, RBI and Banks should really be working on making POS machines and other devices available to the merchants, so that people do not need cash. And more importantly there should be proper infrastructure and legal backing present to make such cashless transactions mandatory, initially there should be incentives provided to all the people to go cashless (not just at Government sites and outlets, but everywhere)
