The banking sector performs several roles that are of economic significance. Although banks have become more diverse than ordinary financial institutions, their core activities still are the same. These include lending, deposit mobilization, and discounting. In an attempt to be more competitive and therefore more profitable, banks have ventured into consumer financing and leasing. The banking sector of Pakistan has evolved over the last two decades as one of the most profitable sectors and its influence on our economy is substantial.
Deposits, from a bank’s point of view, are liabilities. Whereas from the perspective of the bank’s clientele it is safekeeping and/or investment. Different banks are offering different types of bank accounts but in practice, most of them have the same structure and the rate of return or profit rate may not differ from each other substantially. When it comes to return or profit, banking accounts can be classified broadly into two types profit/interest-bearing and non-profit/interest-free accounts. Below we will discuss the basic bank account types in Pakistan.
Non-profit or interest-free accounts
There are two types of non-profit or interest-free accounts being offered by banks in Pakistan. A Basic Banking Account or BBA as it is more famously known and Current Account (CA).
BBA and CA
Both of these offer no interest or profit to the depositor.
Both have limited pre-requisites i.e. you do not require a substantial deposit or extensive documentation for opening these accounts. However, that has changed in recent years. To prevent money laundering, banks have introduced stringent measures under the name of KYC (Know Your Customer) which makes it mandatory for a prospective account holder to provide documents such as valid CNIC, biometric verification, Salary Slip, tax declarations, etc.
The initial deposit for opening a BBA is Rs. 1000, however for a current account, this amount may vary from bank to bank. Foreign banks may demand a much higher initial deposit than local banks for different types of bank accounts.
Both the BBA and CA offer you the facility of ATM and Internet or mobile banking services.
Both the BBA and CA are exempt from zakat deduction.
Banks do not charge any fee for maintaining a BBA, however, the maintenance fee of a CA, although low, can vary from bank to bank and may depend on the minimum balance you maintain in your account every month.
ABBA may be closed by the bank if it remains inactive for 6 months or more, while a CA will become “Dormant” after six months of inactivity. The Dormancy can be removed with a simple request letter.
There is no limit of cheque withdrawal on a CA, however, in a BBA only four such transactions per month are allowed regardless of whether a cheque is being presented for withdrawal or being deposited. A marginal fee will be charged for additional transactions.
ATM withdrawal limits or fund transfer limits may vary from bank to bank for these bank account types in Pakistan.
Savings accounts and Term/Fixed Deposits
Both the savings accounts and term/fixed deposits accounts are also types of bank accounts. They are used for saving/investment and earning profit.
The savings accounts and term/fixed deposits are interest-bearing i.e the depositor earns a profit amount for his deposits.
Savings accounts do not have a specified term associated with them; however, term deposits may vary from as low as 3 months to as high as 10 years.
Profit/interest on a savings account is usually calculated every month and the profit amount is debited to the deposit holder. The Profit on a term deposit may be calculated monthly, quarterly, semi-annually, or annually depending on the term and/or the bank.
You can easily access, deposit, or withdraw funds from your savings account. However, you cannot deposit or withdraw funds to and from a term deposit before the term ends.
The initial deposit and the minimum balance for a savings account may vary from bank to bank and may also be different for different bank account types in Pakistan. For a term deposit, the initial deposit is what you want to invest.
Both the savings accounts and term deposits are zakat and withholding tax-deductible.
Term deposits offer a much higher rate of return than a regular savings account. As a rule, the higher the term of the deposit, the higher the return/profit.
Term deposits are one of the ideal types of business bank accounts.
Foreign Currency Accounts
Accounts can also be classified based on the type of currency. Foreign currency accounts are also among the different types of bank accounts in Pakistan. However, only four other currencies are allowed which include US Dollar, GBP, Euro, and Japanese Yen. Some of the basic features of these accounts are:
Mostly opened by overseas Pakistanis, Dual Nationals, Investors, etc.
Only the same currency can be deposited, for instance, only US Dollars can be deposited in a dollar account.
Funds can be transferred to other countries conveniently.
The account can be either Current or Savings.
The account makes remittance services and traveller’s cheques available to the holder.
Zakat and withholding tax do not apply to non-residents.
Extensive documentation and disclosure are required for account opening.
Minimum Balance and initial deposit may vary from bank to bank.
Islamic Vs Conventional Bank accounts
Some people prefer Islamic modes of financing and profit compared to conventional means. Islamic banking is one of the fastest-growing markets not just in Pakistan but worldwide. It is a multi-trillion market globally. Unlike conventional accounts, Islamic accounts offer profit instead of mark-up. These profits are earned by investing in various commodities or projects, while a percentage of it is shared with the depositor according to agreed terms & conditions. These accounts can be either current, saving, or term deposits. When it comes to Islamic banking the types of bank accounts in Pakistan are usually based on the Islamic ideas of mod area, murabaha, musharaka, etc. Their compliance with shariah is governed by a shariah board that includes Islamic scholars from around the world. Although the basic structure of both the Islamic and conventional deposit accounts may seem the same, however, there is a considerable difference between the modality of transactions.
