Current account vs savings account

By: Bank of Baroda
Wed Jul 3, 2019
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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.


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