What is savings account
03 Jul 2019
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.
- Pasport-size photographs.
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What is current account
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.