If you’re in the dark regarding the difference between a Savings Account and a Current Account, you’re in luck. We’ll break it down for you in simple terms!
For most of us, our introduction to the world of banking started with a Savings Account. A Savings Account is a very simple and hassle-free way of managing money meant for your day-to-day expenses. There is no limit on the amount of money you can deposit in your Savings Account and you also earn interest on it. The interest is calculated on the minimum balance maintained on a daily basis.
A current account, on the other hand, is used to facilitate transactions primarily for businesses and is not used as a saving or investment instrument.
But, what’s the difference between these bank accounts you may ask? Today, we will highlight the differences between a Savings and a Current Account. Hopefully, this will clear the haze surrounding the difference between the two.
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How do Savings Accounts work?
A Savings Account is the most common type of bank account used by individuals (singly or jointly) to park money for carrying out various day-to-day financial transactions. Almost every person you know will have a Savings Account or two. You can open a Savings Account with any public-sector or private-sector bank, Indian post office or co-operative bank.
These accounts do not have any maturity or end date unless the customer specifically requests for a closure.
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Savings Accounts give interest on the money deposited in them. The interest is calculated on the minimum balance kept in the account on a daily basis. It is paid out quarterly or for a shorter duration.
The interest rates applicable on these accounts vary from bank to bank. Earlier, the savings account rates were regulated by RBI at 4%. But after de-regulation in 2011, banks are now free to offer their own rates.
Banks will not allow unlimited free transactions a month through these accounts. Every bank has a limit to the number of free transactions allowed. A cheque book facility is also provided to the account holders. They can deposit cheques and drafts that have been issued in their name.
Generally, there is a required minimum daily average balance which has to be maintained in these accounts. And there are penalties levied in case the minimum balance is not maintained. The minimum balance criteria and penalty varies from bank to bank.
However, some banks offer no-frills Savings Accounts for salary accounts. In some cases, this condition is waived off in lieu of a lesser number of free services provided by the bank (like no cheque books, fewer free transactions, etc.)
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How do Current Accounts work?
As with a Savings Account, you can open a Current Account with any public or private-sector bank. In essence, it’s like a Savings Account, but with add-on features that aid business continuity. Although no interest is earned on the balance maintained in a Current Account, deposits and withdrawals are unlimited and do not attract a fee.
A Current Account has many advantages. Apart from unlimited withdrawals, you also get an overdraft facility and payment on standing instructions.
These types of accounts are opened in the name of businesses owned by bank customers. For example, these accounts can belong to companies, partnerships, proprietorships, trusts, associations, etc. Current accounts can also be opened in the name of individuals that are sole-proprietors, or are running a business in their individual name, as long as the transactions carried out are business-related only.
Like Savings Accounts, current accounts don’t have any maturity or end date either.
Current accounts are non-interest bearing accounts. There have been proposals by some leading banks, like SBI, to offer interest on current accounts with a view to retaining the huge transactions happening in their corporate accounts.
There is no limit on the number of transactions that can be carried out through these accounts. And that is one way of compensating a customer in the absence of interest. Businesses, by nature, conduct a larger number of financial transactions as compared to individuals. Even so, most private banks charge fees for transactions that are above a stipulated limit on certain accounts.
Like the Savings Account, cheque book facilities are provided for current accounts too.
Like Savings Accounts, current accounts also come with minimum balance criteria. However, it is comparatively much higher. While the minimum balance requirement of some public sector banks starts from Rs. 1,000, private banks charge Rs. 25,000 to Rs. 75,000 as quarterly balance requirement and this varies for different types of accounts and locations.
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Another facility that distinguishes current accounts from Savings Accounts is the overdraft facility. Here a customer can withdraw more than what is available in his current account subject to a maximum limit depending on the account.
This helps customers run their businesses despite small shortfalls in cash flows. Once the money is deposited back in the account by the customer, the overdraft is adjusted to reflect the actual balance. The bank also charges additional interest on this overdraft amount, considering it as a short-term borrowing.
Here’s a table that will help you understand the difference between the two.
|Features||Savings Account||Current Account|
|Interest Rates||Interest is calculated on the minimum account balance held in the account. Since 2011, banks are free to offer their own interest rates. Rates may vary from bank to bank.||It is a non-interest bearing account.|
|Transactions||Banks have a limit on the number of free transactions in a month. A cheque book facility is given to account holders.||There is no limit on the number of transactions that can be carried out in this account. Cheque book facility is provided to account holders.|
|Minimum Balance||There is a required minimum daily average balance, which has to be maintained in the account. Penalties are levied if the minimum balance is not maintained. However, some banks offer no-frills Savings Accounts for salary account holders.||This criterion applies to Current Accounts too, but the minimum balance amount is much higher. While the minimum balance requirement of some public sector banks starts from Rs. 1,000, private banks can insist that you maintain Rs. 25,000 to Rs. 75,000 as quarterly balance. This varies for different types of accounts and locations.|
|Overdraft Facility||This facility isn’t applicable to most Savings Accounts and a customer cannot withdraw more than what is available in his/her account. However, some banks do provide this facility to account holders working in certain companies who have a salary account with them.||A customer can withdraw more than what is available in his Current Account subject to a maximum limit, depending on the account.|
So, which account suits your needs the best? The ball is in your park.