Creating an FTP Account within Linux.

For this example, I am using Vsftpd, as it is the default FTP client distributed with RedHat, however these instructions should apply to most FTP server applications.

Create a FTP user group. eg: ftpaccounts
/usr/sbin/groupadd ftpaccounts

Add a new user to this group, and set the default path of that user to /home/user/.
/usr/sbin/adduser -g ftpaccounts -d /home/user/ testuser

Set a password for the newley created user.
passwd testuser

Set ownership of /home/user to the testuser and ftpaccounts.
chown testuser:ftpaccounts /home/user

Give Read/Write access to testuser and all members in ftpaccounts
chmod 775 /home/user

Edit /etc/vsftpd/vsftpd.conf file and make sure 'local_enable=YES' is uncommented.

Restart the vsftpd service.
/etc/init.d/vsftpd restart