Current accounts are very popular among companies, firms, public enterprises, businessmen who generally have higher number of regular transactions with the bank. The current account includes deposits, withdrawals, and contra transactions. Such accounts are also called the Demand Deposit Account.
A Current account can be opened in most of the commercial banks. A current account being a zero-account, is generally associated with huge transactions on a regular basis. Because of the fluidity that these accounts offer, they don’t earn any interest. These also usually do not carry a limit on the number of transactions which can be made.
Advantages of having a Current Account
- Current accounts allow handling of large volumes of receipts and/or payments systematic.
- Overdraft facilities are also available for current account holders.
- The presence of small interest earnings on account balance makes a current account all the more attractive for its users.
- The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government.
- Assists creditors of the account holder who can have access to information on the account holder’s credit-worthiness through inter-bank connection.
- It facilitates the industrial progress of the country. Without its help, businessmen would face difficulties in running their businesses.
- Provides with Internet-banking and mobile-banking to enable businessmen carry out important business transactions promptly and with ease.
Disadvantages of having a Current Account
- There is an opportunity cost of losing on the interest rates due to low or zero interest on money in current account.
- The involved paperwork and fine print serves to be lengthy and confusing.
- Huge fees due to corporate business transactions.
- There is a limit on the amount of funds that can be withdrawn in a day.
Features of Current Bank Account
The main features of current account are as follows:-
- Current bank accounts are operated to run a business.
- It is a non-interest bearing bank account.
- It needs a higher minimum balance to be maintained as compared to the savings account.
- Penalty is charged if minimum balance is not maintained in the current account.
- current account charges interest on the short-term funds borrowed from the bank.
- account is of a continuing nature as there is no fixed period to hold a current account.
- It does not promote saving habits with its account holders.
- Banker requires KYC (Know your Customers) norms to be completed before opening a current account.
- The main objective of current bank account is to enable the businessmen to conduct their business transactions smoothly.
- There is no restriction on the number and amount of deposits.
- There is also no restriction on the number and amount of withdrawals made, as long as the current account holder has funds in his bank account.
- Generally, bank does not pay any interest on current account. Nowadays, some banks do pay interest on current accounts.
Savings Account v/s Current Account
A Savings account differs from a Current account in many ways and aspects.
Both these accounts address different financial needs of the user, helping in better money management.
A Savings Account has been designed to encourage and promote savings
Current Account Is designed to facilitate regular or frequent transactions.
Savings account : ideal choice for any individual who earns a steady or regular income like salaried employees.
This type of account is also ideal for those who have any short term financial goals to meet like a future vacation, financing a wedding, buying a car etc.
current account : Is more suited individuals who are required to carry out frequent money transfers like businessmen, firms, companies, organizations, public enterprises, etc.
Savings Account: Banks offering the facility of a Savings account do usually put a limit on the maximum number of transactions which a holder can carry out in a month.
The permissible limit without attracting any charge is usually anywhere between 3 to 5 transactions per month (financial and non-financial).
Current accounts: Do not have any limit on the maximum number of transactions which one can carry out. This is primarily because Current accounts serve the purpose of carrying out frequent transactions.
Savings Account: Will usually earn you an interest between 4% to 6% on a pre-specified basis.
Since these accounts do not allow unlimited transactions, it is easier to accumulate more funds over a period of time.
Current Account: In the case of current accounts, banks usually do not provide any interest.
This is due to the fluid nature of the account which allows frequent transactions.
Minimum balance is the minimum amount of money which must always be in your account in order to prevent it from de-activating or lapsing.
For Savings accounts, the minimum balance required is usually low.
However, for Current accounts, one may need to maintain a relatively higher amount as minimum balance.