Commercial Banks – Services/Functions

1. Accepting Deposits:

Commercial banks accept deposits from customers for safekeeping. Opportunities are provided for withdrawals whenever necessary by the customers. There are three types of accounts used in recording customers’ deposits. They are:

i. Current Account:

The current account is also called a demand deposit account. It is one account that is commonly used by traders and workers for their financial transactions in the bank. When this account is opened, a chequebook is given to the customers to facilitate withdrawals. The bank accepts deposits into a current account using a deposit slip, which states the amount to be deposited.

ii. Fixed Deposit Account:

A fixed deposit account is opened by a customer having excess liquid. Money not immediately needed is paid into this account for a fixed or specified period. An assured interest rate is paid for keeping the funds for a particular period. Fixed Deposits are an easy way to earn returns from funds that are lying idle.

iii. Savings Account:

As the name implies, the savings account is opened mainly for savings. When this account is opened, the amount deposited is entered into a passbook that is used for operation in the account. It is different from a fixed deposit because the money kept in a savings account is smaller and for an unspecified period. Therefore the interest rate is lower.

2. Loans to Customers:

Commercial banks give loans to customers and other businesses in need of money for financing their businesses. Loans are given usually to attract some percentage of interest. The bank usually requires collateral security on loans given out in the form of security in case of default.

3. Overdraft:

Commercial banks grant overdrafts to current account holders to enable them to meet their financial requirements. With an overdraft, the customer is allowed to withdraw money above what he or she has in their current account, to the limit of the overdraft granted.

4. Safe-keeping of Valuable Items:

Customers keep their valuable items such as educational certificates, certificates of occupancy, wills, gold, ornaments, etc. in the strong room (bank vault) for safekeeping.

5. Issuing of Traveller’sCheque:

A traveller’s cheque is brought from commercial banks; Payment is made in local currency. A traveller’s cheque is a bank document issued by banks and it is accepted internationally as an exchange for cash. Its use has been in decline since the emergence of debit cards, credit cards and ATMs.

6. Acting as Agents of Payment:

Commercial banks usually make payments on behalf of their customers.

7. Foreign Transactions:

Commercial banks assist customers with their foreign transactions from time to time. Importers of goods rely strongly on commercial banks for the remittanceA remittance is a sum of money sent to another party, usually in another country. More of money to their foreign counterparts.            

8. Discounting Bills of Exchange:  

Commercial banks allow businessmen to discount their bills of exchange to enable them to have ready access to cash before the maturity date of the bill.

9. Acting as Trustees and Executors:

Sometimes customers deposit their wills in trust at commercial banks for them to execute at the death of such customers.

10. Technical Advice to Customers:  

Commercial banks usually render technical advice to customers by going through their feasibility studies and other reports before embarking on the project.