Current account vs savings account
03 Jul 2019
Having a bank account is essential for modern-day living. You need it to receive and make payments, and there are very few transactions that do not require a bank account. Of course, cash is still king in India for large sections of the population, but the number of those people is steadily declining. Besides, Internet banking has made banking so much more convenient, allowing people to carry out most transactions online, without the need for messy paper bills and cheques.
The majority of bank customers open either a current account or a savings account. Some people get confused between the two terms and are unable to tell the difference between current account vs savings account. Of course, these are very different, and it’s important for you to understand what is the difference between current and savings account? Here are some of the differences:
Current vs savings account
- Purpose: A current account is intended for those who do business, like shopkeepers, traders, companies and service organisations. Generally, the volume of transactions in a current account is very high. A Savings Account, on the other hand, is meant mainly for individuals, who deposit their salaries/ income in the account and use it to pay their personal and household bills.>
- Interest: Generally, since a current account is opened for business purposes, funds deposited in it do not earn any interest. However, some banks offer a sweep-in facility to its customers. Any sum that is over a certain limit is automatically put in a fixed deposit, which earns some interest. A savings account, on the other hand, offers interest on funds deposited. Of course, this is not very high, ranging from 3.5-6% per annum, which might not even be enough to cover inflation. Interest is calculated on the daily outstanding balance. However, the interest earned is credited to your account not daily but every quarter or half year.
Of course, if you want higher interest rates, you could deposit any excess funds in a fixed deposit. A savings account should be used mostly for carrying out transactions, and is not preferred as an investment avenue.
- Balance: You need to keep a certain minimum balance in most accounts, except in those classified as zero-balance accounts. Generally, banks require its customers to keep a larger minimum balance in current accounts compared to savings accounts.
- Overdraft facility: Current Accounts offer an overdraft facility that savings account do not. Businesses generally conduct a lot of transactions every day. Sometimes, there may be a mismatch between deposits and payments, or the funds in the account may not be enough to meet payments. To bridge this gap and prevent cheques from being dishonoured, the bank may allow an overdraft facility, a sort of bridge loan, for a short period.
- Withdrawals: There no limit on withdrawals from a current account. In a savings account, on the other hand, the bank will allow you only limited number of withdrawals, after which you may have to pay some charges.
To sum up, the difference between current and savings account is that they target different types of customers, who will have different needs. A businessman will open a current account because his need is mainly for liquidity to handle huge volumes of transactions. An individual who opens a Savings Account, on the other hand, won’t feel the need for a large number of transactions and may want to earn some interest on the amount deposited.
Baroda Premium Current Account-Privilege (BPCAP)
The Baroda Premium Current Account-Privilege is an ideal account for customers who own medium to large businesses. Account holders can avail several free services and benefits under the BPCAP account. The privilege current account is designed to meet several specific needs of customers holding the account. Immediate credit of outstation cheques and auto payroll are some of the key benefits offered with this account.
Key features of the Baroda Premium Current Account-Privilege
Free cheque books
BCAP account holders can obtain free unlimited chequebooks for their transactions.
Account holders can get free account statements, twice a month.
BCAP account holders get free banker’s cheques, balance certificates, MT/TT facilities and signature verification facilities. They also get free auto payroll, internet banking facility, SMS alert and missed call facilities. Folio charges on the account are also waived off.
No charges are levied for funds transferred at BOB’s Core Banking Solution branches.
Auto and reverse sweep facility
Account holders can deduct a minimum amount of ₹25,000 through the auto-sweep facility, provided their balance has crossed ₹5.25 lakh. Reverse sweep facility is also available.
Free Cash withdrawals
Free unlimited cash withdrawals at home branches however up-to ₹50,000 are permitted per day at non-home branches only for withdrawals made through self-cheques
Benefits of the Baroda Premium Current Account-Privilege
Account holders get a debit card (for Individual & Sole Proprietorship accounts only) with annual charges waived off for the first year
Outstation cheques of up-to ₹1.5 lakh are credited immediately credited for customers holding the account for a period of 6 months and above
Account holders are provided with a free credit card with annual charges for first year, waived off
Account holders receive a complimentary personal accident insurance cover with the credit card
Loan processing fees are waived off for car loans disbursed in the name of the firm or proprietor
20% discount is offered on BOB locker rental charges
Free standing instruction against account service if offered with the account
Nomination facility is offered with the account
Kids Bank Accounts - Features and Benefits
With advancements in banking technology, there are different types of savings accounts that are available to the people. One such type of savings account is a kids bank account. A Kids Bank Account is an account that can be operated by a child below 18 years. The child can thus imbibe a financial savings habit from early on.
Features of a Kids Bank Account
This bank account can be opened for children below 18 years. For children below 10 years, the account can be opened but can’t be operated by the child unless it is jointly operated by the parent or legal guardian. Once the child crosses 10 years, he can manage the account.
The kids bank account becomes inoperative after the child becomes a major. However, banks give the accountholder an option to convert their kids bank account into a regular savings account.
The child gets some of the features provided in a regular Savings Account such as cheque book, pass book and ATM card. However, these come with restrictions.
The kids bank account is linked to the parent or the legal guardian’s account. Each month or at a fixed interval, a sum of money is debited from the linked account to the kids bank account. This way, there is always balance in case the child spends money on the debit card. This linking feature is not available in all Banks.
Each bank has its own limits on the ATM withdrawal allowed and the per day spend allowed in a kids bank account. These safeguards prevent misuse of this account and the possibility that the child will spend more money than a particular limit.
The bank may provide a login Id and a password so that the child can operate internet banking. However, the bank usually gets a signed mandate from the parent or legal guardian before it issues the login ID and password.
These accounts must have a certain minimum account balance. The minimum account balance differs from bank to bank. In case the minimum bank account is not met, the bank charges a penalty.
The bank sends an SMS to the parent or legal guardian every time a transaction is performed in relation to the kids bank account. This helps maintain control.
How to open a savings account for kids
The procedure on how to open a kids bank account is extremely simple. The first step is to find out which bank to open the account with. It is better to open a savings account in a bank in which the parents or the legal guardian have an account. This helps the bank to link the two accounts and to put in a standing instruction to auto debit the parents or guardian’s account for funds (if linking facility is available).
Once the bank is decided, the account can be opened by filling up an account opening form on the bank’s website. Once this form is filled up, someone from the customer care department of the bank will contact you to get documents from you. Some of the documents required are:
KYC documents for parent or legal guardian
KYC documents for child
Passport size photographs of the child
Duly completed application form
In case an online application procedure is not possible, you can visit a branch, fill the form and submit the documents to open a new account.
Benefits of Kids Bank Account
A kids bank account is an excellent way to teach your child fiscal responsibility. Through this bank account, your child can learn how to operate a bank account, especially when the funds are limited.
This account teaches a child the value of budgeting since there is a limit on the transactions that can be done every day. There is also a limit on the funds in the account and a minimum account balance that has to be maintained.
Some Banks provide free insurance for the child on opening the kids bank account
Banks may have auto sweep in facility that converts excess balance into a fixed deposit so that the earnings on the account are maximized.
Kids Bank Account Tax Implications
As per the Income Tax Act, 1961, a child’s income from investments made in his name by parents is clubbed with the parent’s income. Unless the income is from the child’s own skills, in which case it is taxed in the child’s name.
Whatever interest is earned on the savings account balance or the fixed deposit through sweep in, will be clubbed with the parent or the legal guardian’s income. This income is clubbed with the working parent’s income. In case both the parents are working, this income is clubbed with the parent whose income is higher.
However, the Income Tax Act also exempts Rs. 1,500 per child for clubbed income. This provides a little bit of relief from taxation. It is important to consider children’s bank account tax as well before opening the account. However, the benefits of opening an account and teaching your child financial lessons trumps the amount paid in terms of tax on savings bank account interest.