What is current account
03 Jul 2019
Banks offers several kinds of accounts to customers depending on their needs. Two of the most popular are savings account and 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.
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.
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.
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.
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 Savings Accounts
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.
Types of Accounts and Deposits
What are the types of accounts and deposits available?
It’s important to know where you can save your money. As the rule goes, high-risk on your capital can result in a higher return while investing money in low-risk instruments would result in lower interest.
Banks, including Bank of Baroda offer a host of instruments that are what can be termed as low on risk and medium to low on return.
We shall now look at the various instruments that are available to a customer to deposit their money with the bank and earn returns.
Types of Deposits
A primary function for a bank is to mobilise public money. They do so in the form of deposits. There are two types of deposit accounts that you can open in a bank. They are time deposits and demand deposits.
A Time Deposit also known as a Term Deposit is a deposit which has a fixed tenure and earns interest for the customer. The tenure varies for each instrument and may even change from bank to bank.
The most widely used name for time deposits is Fixed Deposits. The common feature among all Time deposits is that they cannot be withdrawn prematurely. One should thus plan their deposits according to their requirement for money going forward.
The more the money resides in the bank of a term deposit the more interest it earns. Banks pay higher interest in longer-term deposits than on shorter ones.
Fixed Deposits earn higher interest than a Savings Account because the former gives Banks leg room to lend to people who need the money for roughly the same time limit. For example, a one year fixed deposit in a bank can allow the bank to lend money to a person who requires a personal loan for one year period.
Commercial banks have over the years made Fixed Deposits more attractive by offering various frills like overdraft facility, zero cost credit cards, nomination facility, safe deposit lockers, internet banking among others.
In this case, a fixed amount, as decided by the depositor, is deposited at regular intervals till the end of the tenure. The accumulated interest and the principal is given back to the depositor at the end of the tenure. The tenure of a recurring deposit can be anything from six months to 120 months.
As the name suggested, you can withdraw this deposit on demand. Such funds are held in accounts where it is easier to withdraw money either by going to the bank or an ATM. Savings and Current accounts are the two types of commonly used Demand Deposits account,
In such type of deposits, the risk is low but so is the return. However, there is one more factor that this type of deposit has and that is liquidity since money can be withdrawn at a moment’s notice.
The reason for the existence of such accounts is to provide the customer convenience of meeting his daily requirement of funds. It does not serve the purpose of ‘investment’ or ‘wealth creation’.
TYPES OF ACCOUNTS
These are interest-bearing accounts where the rate of interest depends on the bank where it is deposited. Further, there are restrictions in terms of the number of times money can be withdrawn from this account. These restrictions are also imposed by the bank and may vary between two banks. The depositor can withdraw his money by going to the bank and use the withdrawal slip or use his cheque book or go to an ATM and use his card. Money can also be transferred to someone else by using the cheque facility or using an electronic mode of transfer.
This type of account is generally operated by companies and firms. These are the non-interest-bearing deposit and serve the purpose of providing liquidity. Since there are many transactions in these accounts, the cost of managing them is high. Hence banks ask the depositors to maintain a minimum deposit. Current accounts have overdraft facility which the banks provide the customers to meet their short-term liquidity mismatch.
What is savings account
Most Indians are familiar with bank accounts, and most of you will have a saving account. Let’s look at saving account meaning, how you can open one and make the best of it.
Banks have many types of accounts, the main ones being current account and saving account. The saving account definition should give you some indication about what it’s all about – it’s about saving. Of course, there’s more to a saving account that just that. So let’s find out what is a saving account and its features.
A saving account is meant for individuals and salaried people to meet their personal requirements. The main function is to ensure liquidity. It enables you to make and receive payments. For example, you deposit the cheques you receive in your saving account, and use the account to make payments. And when you need cash to meet your day-to-day requirements, you just withdraw it from your savings account.
Most banks today offer Mobile and Internet banking, so the process of making and receiving payments has become so much easier. You hardly need to visit the bank branch to make any transactions. You can withdraw cash from an ATM, can transfer funds online to pay bills, make purchases, send money to your family in another city etc.
So the saving account meaning includes liquidity and saving. But the emphasis is more on liquidity. Sure, your saving account does offer you interest on the balances you keep in it. But these are on the lower side, ranging from 3-6 percent. This will not cover even the inflation rate, and the real value of your money will diminish if you keep it in a savings account for a long time. But then, a savings account is very liquid, and there are costs involved in that.
If you want to keep funds for a longer time, it’s better to switch over to a fixed deposit, which offers a much higher interest rate. Some banks offer a sweep-in facility where money above a certain limit in your savings account will be automatically transferred to a fixed deposit.
Most banks require you to keep a minimum balance in your savings account. However, there are no-frills accounts that enable you keep zero balance in your account.
In recent times, banks have differentiated their savings account offerings so that the savings bank account meaning seems to have undergone a change. There are zero-balance savings accounts that allow you keep your account clean as a whistle. A salary account enables an employer to disburse salaries to employees quickly and efficiently. And there are savings accounts that are meant especially
Benefits of savings account
Enables you to keep your cash safe.
Enables easy payments and receipts.
Idle cash earns interest.
Easy to operate.
Network of ATMs make it easier to withdraw cash.
Online banking enables easy payment of bills and fund transfer.
How to open a savings account
In recent years, banks have simplified the account opening process, so that it can be done quickly and efficiently. In fact, some banks even send their representatives over to your home, so that you can open a savings account without ever visiting the bank branch. Here’s what you need to open a savings bank account:
Proof of identity, like Aadhaar card or PAN card.
Proof of address, like passport, Aadhaar card, driving licence or voter card.