Banking • Topic 1 of 3

Banking Transactions

What is a Banking Transaction? A banking transaction is any activity that involves moving money into or out of a bank account. This includes depositing money, withdrawing cash, transferring funds, paying bills, or checking your account balance.

How do banks work? Banks are financial institutions that keep our money safe, give loans, and help us make payments. When you deposit money, the bank pays you interest (extra money) for keeping your funds with them. When you take a loan, you pay interest to the bank.

Common Banking Transactions:

Deposit: Adding money to your account (cash or cheque)
Withdrawal: Taking money out (ATM, cheque, or bank teller)
Transfer: Moving money between accounts (NEFT, RTGS, IMPS)
Cheque: A written instruction to pay a specific amount
Online payment: Paying bills or shopping using internet banking
ATM transaction: Using a debit card to withdraw cash or check balance

Important Banking Terms:

Principal (P): The amount of money deposited or borrowed
Interest: Extra money earned or paid for using money
Rate of interest (R): Percentage charged or paid per year
Time period (T): Duration for which money is deposited or borrowed
Maturity amount: Principal + Interest earned

TYPES OF BANKING TRANSACTIONS

┌─────────────────────────────────────────────────────────────┐
│                     BANKING TRANSACTIONS                    │
├─────────────────┬─────────────────┬─────────────────────────┤
│   DEPOSITS      │   WITHDRAWALS   │      TRANSFERS          │
├─────────────────┼─────────────────┼─────────────────────────┤
│ • Cash deposit  │ • ATM withdrawal│ • NEFT (1-2 hours)      │
│ • Cheque deposit│ • Cheque        │ • RTGS (instant,        │
│ • Online fund   │ • Bank teller   │   min ₹2 lakh)          │
│   transfer      │ • Debit card    │ • IMPS (instant, 24/7)  │
│ • Salary credit │ • UPI payment   │ • UPI (Google Pay,      │
│                 │                 │   PhonePe, Paytm)       │
└─────────────────┴─────────────────┴─────────────────────────┘

HOW INTEREST WORKS (Simple Example)

   Deposit: ₹10,000 at 5% per year
   
   Year 1: ₹10,000 + ₹500 interest = ₹10,500
   Year 2: ₹10,500 + ₹500 interest = ₹11,000
   Year 3: ₹11,000 + ₹500 interest = ₹11,500
   
   Total interest earned in 3 years = ₹1,500

FLOW OF A CHEQUE TRANSACTION

   Buyer writes cheque ──→ Buyer gives to seller
                              ↓
   Seller deposits cheque in bank
                              ↓
   Seller's bank sends cheque to buyer's bank
                              ↓
   Buyer's bank verifies signature and balance
                              ↓
   Money transferred from buyer to seller account

Solved Examples

Worked Example

Rohan deposits ₹5,000 in his savings account. The bank pays 4% simple interest per year. How much interest will he earn in 2 years?

Solution

Principal (P) = ₹5,000
Rate (R) = 4% per year
Time (T) = 2 years
Simple Interest = (P × R × T)/100
= (5000 × 4 × 2)/100
= (40000)/100 = ₹400

Answer: ₹400 interest.

Worked Example

Priya withdraws ₹2,000 from her ATM. The bank charges ₹20 per transaction at other bank ATMs. If she uses another bank's ATM, what is the total amount deducted from her account?

Solution

Withdrawal amount = ₹2,000
Transaction fee = ₹20
Total deduction = ₹2,000 + ₹20 = ₹2,020

Answer: ₹2,020 will be deducted.

Worked Example

A businessman deposits ₹25,000 in his account. He issues a cheque for ₹18,500 to a supplier. Later, he deposits another ₹10,000. What is his final balance if he started with ₹40,000?

Solution

Starting balance = ₹40,000
Add first deposit: ₹40,000 + ₹25,000 = ₹65,000
Subtract cheque payment: ₹65,000 - ₹18,500 = ₹46,500
Add second deposit: ₹46,500 + ₹10,000 = ₹56,500

Answer: Final balance = ₹56,500.

Key Points

A banking transaction is any movement of money in or out of an account.
Deposits add money; withdrawals remove money.
Banks pay interest on deposits and charge interest on loans.
Common transactions include ATM, cheque, online transfer, and UPI.
Always check for transaction fees when using other bank ATMs.

Quick Check — 4 MCQs

Tap an option to check your answer0 / 4

Q1.Simple interest is given by:

Explanation: SI $=\tfrac{PRT}{100}$.

Q2.In a recurring deposit, money is deposited:

Explanation: Regular monthly installments.

Q3.Maturity value equals:

Explanation: Deposit plus interest.

Q4.Banks pay ___ on customer deposits.

Explanation: Interest.

Practice more MCQs → 📝 Assignment · 35 marks