What is current account
03 Jul 2019
Table of Content
Banks offers several kinds of accounts to customers depending on their needs. Two of the most popular are savings account and current account.
What is Current Account?
So what is current account? Current account is for those who have a very high volume of transactions – whether debit or credit. Hence it is meant for conducting a business, and generally opened for businessmen, traders and service providers. Sometimes current accounts are also called demand deposit accounts. No interest is paid on these accounts, sometimes even a fee is charged for banking services.
To understand the current account meaning, let’s look at its various features.
Features of Current Account
- High liquidity
Current accounts are meant to ensure a high level of liquidity. Money flows constantly in and out of an account. Customers use it not as an investment, but as a tool to facilitate daily business transactions. They issue cheques to those with whom they have business dealing, and, in turn, receive cheques from them.
- Interest rates
One feature of a current account is that deposits made in it does not earn interest. This is because, as we have pointed out earlier, the current account definition is that it’s a tool for conducting business, not an investment avenue. On the other hand, a savings account earns some interest for customers – albeit small. However, there are some banks that offer a sweep-in facility. That is, if the balance reaches a certain level, it is automatically transferred to a savings account or a fixed deposit , where it can earn some interest.
- Overdraft
When you are finding out what is current account in bank, you need to understand the concept of an overdraft. Business transactions are quite fluid and rapid, and sometimes there could be a gap in the inflows and outflows. Banks in that case provide an overdraft facility so that any cheques issued are not dishonoured.
Advantages of Current Account
- Enables businesspersons to keep the flow of money smooth and get and make payments on time.
- Overdraft facilities are available to tide over any temporary cash flow issues.
- Internet and mobile banking enable smooth and error-free transactions.
- Very handy for large volume of transactions.
All Indian banks offer current account facilities. You can open one in any bank by completing formalities like submitting PAN card, Certificate of Incorporation, address proof of the company, ID and address proof of partners and directors etc.
Difference Between Savings Account and Current Account
Now that we explained what is meant by current account, let’s compare it with a savings account. How different are the two accounts?
- Interest rates: Savings banks offer interest to encourage customers to save. Current account is focused on money flows, so no interest is offered. In fact, charges may be levied.
- Target customers: The target customers of a current account are businessmen, traders and service providers. Savings accounts are meant for individuals, especially for salaried persons with a monthly income.
- Minimum balance: Both savings accounts and current accounts require a minimum balance to be maintained. However, this is higher in the case of current accounts.
- Overdraft: While a current account offers overdraft facility, no such facility is available in a savings account.
- Number of transactions: The number of transactions allowed in a current account is quite large. It’s much smaller in the case of .
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Saving accounts features
What are the features of a savings account?
A savings account is the first step a person takes toward saving. As the name suggests it is a place where the savings are stored but it is not an investment.
The savings account is the conduit through which investments can be made. But the first step starts from taking the money out of your money box and into a bank.
Why have a savings account?
Rather than keeping money at home in your money box, keeping it in a bank is suitable as it offers interest on the deposit made. This is the main reason why you have a savings account. The interest rate is not high, but it helps in partially softening the blow of inflation. In other words, the money one deposits in the bank are working to give you some return. Not only is the money in the savings account safe and earns interest it has other advantages also.
Features of a savings account
The following are the features of savings account
First, the money can be withdrawn at any point in time. With ‘Any-Time-Money’ (ATM) counters available across the country, a saving bank account holder who has debit/ ATM card facility can withdraw money from anywhere in the country. This adds a safety element where the depositor need not move around carrying cash in his pocket.
With e-payment on the increase, the saving bank account helps in regular monthly payments like that of electricity, society maintenance, telephone and mobile bill payment, insurance premium payment among others.
Salaries can be directly credited to the savings bank account. This helps both the employee as well as the employer. For the employer with a single click of the button, money is transferred to all the employees. For the employee, they are saved the travel to the bank as well as can have the money credited in their account at a faster pace.
Post-retirement the same savings bank account helps in getting a regular pension.
Loans that a person takes are generally linked to the savings bank account which is the primary account where his salary is deposited. Direct electronic instructions can be given from the savings bank account or Post Dated Cheques (PDCs) from this account. Savings bank account often eases the process of availing loans.
Cheque bounce history of the customer’s savings account tells his creditworthiness. A customer with no defaults on loans on his name has a much higher credit rating and finds it easier to get loans.
Having a savings bank account encourages the habit of saving rather than keeping cash in hand. This discourages impulsive shopping.
Savings account helps in accessing other financial instruments like online trading, mutual funds investments through direct transfers among others.
A standing instruction can be given to the bank where if the amount in the Savings Account crosses a particular threshold it will be transferred to any other higher yielding instrument.
It helps in making travel plans easier by booking tickets as well as hotel bookings through online mode.
The passbook or electronic statement of the savings bank helps in keeping an automatic tab of where the money came from and where it was spent.
At the end of the year, it helps in filling your tax returns with the income tax authorities. Since all the transactions are recorded in the bank statement, a salaried employee has the little hassle to file his returns.
What Are the Different Types of Bank Accounts in India?
Learn about different types of bank accounts in India, including savings, current, FD, RD, NRI & senior citizen accounts. Choose the right account with Bank of Baroda.
