Functions of Commercial Banks: Providing Deposit Accounts

Commercial banks play a crucial role in the economy by providing a range of deposit accounts to individuals and businesses. These accounts serve as safe places to store money and facilitate financial transactions. This section will detail the two primary types of deposit accounts offered by commercial banks: demand deposit accounts and savings accounts.

Demand Deposit Accounts

Demand deposit accounts are the most basic and widely used type of account offered by commercial banks. They provide customers with the ability to withdraw money from their account at any time without prior notice.

• Checking Accounts: These are a specific type of demand deposit account. They are designed for everyday transactions, such as paying bills and making purchases.
• Features: Demand deposit accounts typically offer features like chequebooks, debit cards, and online banking access.
• Interest Rates: Generally, demand deposit accounts offer little to no interest on the money held within them.

Savings Accounts

Savings accounts are designed to encourage saving. While they offer less frequent access to funds compared to demand deposit accounts, they typically offer a higher interest rate.

• Features: Savings accounts may have restrictions on the number of withdrawals allowed per month.
• Interest Rates: Savings accounts offer a variable interest rate, which can fluctuate depending on economic conditions.
• Purpose: Savings accounts are ideal for setting aside money for future goals, such as a down payment on a house or retirement.

Comparison of Demand and Savings Accounts

The provision of these deposit accounts is fundamental to the banking system. They facilitate the flow of money in the economy, provide a safe place for individuals and businesses to store their funds, and enable banks to lend money to other customers, thereby driving economic growth.