Difference Between Savings Account and Current Account
When managing finances, choosing the right type of bank account is essential. Savings accounts and current accounts serve different purposes and cater to varied needs. This article will delve into the fundamental differences between these two types of accounts, helping you make an informed decision.
1. Purpose and Usage
Savings Account: A savings account is designed to encourage individuals to save money. It is primarily used by individuals who want to keep their surplus funds in a secure place while earning interest on the deposited amount. The main objective of a savings account is to promote savings among people, helping them accumulate wealth over time.
Current Account: A current account, on the other hand, is mainly intended for business entities, professionals, and entrepreneurs who need to carry out frequent transactions. It is designed to facilitate daily business operations by allowing an unlimited number of transactions. Current accounts are also known as checking accounts in some countries.
2. Interest Rates
Savings Account: One of the significant advantages of a savings account is that it earns interest on the deposited funds. The interest rates on savings accounts vary from bank to bank, but they generally range between 2.5% to 4% per annum. The interest earned is credited to the account holder’s balance periodically, usually on a quarterly basis.
Current Account: In contrast, current accounts typically do not offer interest on the deposited funds. The main focus of a current account is to provide liquidity for daily transactions, not to generate income from interest. However, some banks may offer interest on high balances, but this is not a common practice.
3. Minimum Balance Requirement
Savings Account: Savings accounts often have a minimum balance requirement, which varies depending on the bank and the type of savings account. This minimum balance is generally lower compared to current accounts. If the account balance falls below the minimum requirement, the bank may charge a penalty.
Current Account: Current accounts usually have a higher minimum balance requirement. This is because they cater to businesses and professionals who require large sums of money for their operations. Failure to maintain the minimum balance can result in significant penalties or service charges.
4. Transaction Limits
Savings Account: Savings accounts have a limited number of free transactions per month, especially for cash withdrawals. Beyond this limit, banks may charge a fee for each additional transaction. The limitation is imposed to encourage saving rather than frequent spending.
Current Account: In contrast, current accounts offer unlimited transactions without any fees, making them ideal for businesses that need to carry out numerous transactions daily. This feature is crucial for businesses to manage their finances efficiently.
5. Overdraft Facility
Savings Account: Most savings accounts do not come with an overdraft facility. An overdraft facility allows account holders to withdraw more money than what is available in their account, up to a certain limit. Some banks may offer an overdraft facility on savings accounts, but it is not a standard feature and often comes with higher interest rates.
Current Account: Current accounts, however, commonly provide an overdraft facility, which is highly beneficial for businesses. This facility helps businesses manage their cash flow by allowing them to withdraw more than their available balance. The overdraft limit and interest rate are determined by the bank based on the customer’s relationship with the bank and creditworthiness.
6. Fees and Charges
Savings Account: Savings accounts generally have lower fees and charges compared to current accounts. Banks may charge fees for services like issuing a new checkbook, account maintenance, or if the balance falls below the required minimum. However, these fees are usually minimal.
Current Account: Current accounts tend to have higher fees and charges due to the additional services they offer, such as overdraft facilities, higher transaction limits, and other business-related services. Businesses may also incur charges for transactions like electronic fund transfers, issuing demand drafts, and account maintenance.
7. Cheque Book and Passbook Facility
Savings Account: Savings accounts come with a cheque book and passbook facility, allowing account holders to keep track of their transactions. The cheque book can be used to make payments, while the passbook records all the account transactions.
Current Account: Current accounts also provide a cheque book, but the passbook facility is usually not available. Instead, businesses often receive monthly statements to keep track of their transactions. The cheque book in a current account is frequently used for making payments to suppliers, employees, and other business-related expenses.
8. Eligibility and Account Holders
Savings Account: Savings accounts can be opened by individuals, including minors (with a guardian) and joint account holders. It is not limited to any specific group of people, making it accessible to a broad audience.
Current Account: Current accounts are primarily opened by businesses, firms, companies, and professionals like doctors, lawyers, and freelancers. While individuals can also open a current account, it is more common among those who require frequent and high-volume transactions.
9. Tax Benefits
Savings Account: Interest earned on a savings account is subject to tax under the “Income from Other Sources” category. However, under Section 80TTA of the Income Tax Act, individuals can claim a deduction of up to Rs. 10,000 on the interest earned from savings accounts. This benefit is available to individuals and Hindu Undivided Families (HUFs).
Current Account: Since current accounts do not typically earn interest, there are no tax benefits associated with them. Any interest earned (if applicable) is taxable and does not qualify for any deductions.
10. Digital Banking Facilities
Savings Account: Savings account holders enjoy a wide range of digital banking facilities, including internet banking, mobile banking, and ATM services. These facilities allow account holders to check their balance, transfer funds, and perform other banking activities from the comfort of their homes.
Current Account: Current account holders also have access to digital banking facilities, but the services are tailored to meet the needs of businesses. For instance, current account holders may have access to bulk payment options, corporate internet banking, and specialized services like cash management.
11. KYC (Know Your Customer) Requirements
Savings Account: Savings accounts require standard KYC documentation, such as proof of identity, address, and a recent photograph. The KYC process is relatively simple and straightforward.
Current Account: Current accounts may require more comprehensive KYC documentation, especially for businesses. This could include the company’s registration documents, Memorandum of Association (MoA), Articles of Association (AoA), and other relevant documents depending on the type of business entity.
12. Closure Process
Savings Account: Closing a savings account is relatively easy and can be done by submitting a written request to the bank along with the required documents. The process is quick, and any remaining balance is transferred to the account holder.
Current Account: The closure process for a current account is more complex due to the involvement of multiple transactions and business activities. Before closing, businesses need to ensure that all cheques have been cleared, all dues are settled, and no pending transactions are left. The bank may require additional documentation to process the closure.
Conclusion
Choosing between a savings account and a current account depends on your financial needs. If you aim to save money and earn interest, a savings account is the right choice. It offers a secure place for your funds while generating interest income. However, if you run a business or need to perform frequent transactions, a current account is more suitable. It provides the necessary facilities to manage your business finances effectively.
Understanding the key differences between these two accounts can help you make an informed decision that aligns with your financial goals. Whether you’re an individual looking to save money or a business owner needing efficient cash management, selecting the appropriate account type is crucial for your financial success.
Leave a Reply