This post is dedicated to understand the basic difference between “Savings Account and Current Account“. and what is Savings Account and Current Account? These terms are the very basic pillars of a banking industry and everyone knows about it, however, let us look at these terms from a purely financial perspective. This article intends to help those people who intend to shift from a salaried employee to a budding entrepreneur.
Here are some of the queries that cross our minds when we think of Savings Account and Current Account:
- What is Savings Account and Current Account?
- What is the difference between Savings Account and Current Account?
- How to know if account is Saving or Current?
- Why a salaried person uses Savings Account and not a Current Account?
What is Savings Account and Current Account ?
First of all, Let us understand what is Savings Account and Current Account
What is Savings Account ?
The primary purpose of a savings account is to promote savings among investors. This account permits you to keep your money safe and allow you to withdraw anytime without any restrictions. There are different ways you can withdraw money from the savings account:-
- Using ATM cards
- Withdrawal slips issued by the bank
- Using the cheque book issued by the bank
You can do online payment of Electricity/Mobile/Internet/Credit Card bills, authorize to invest through SIP, EMI of home loan and car loan etc. from this account. In effect, this will allow you to manage your receipts from salary, personal expenses and savings. If you are net savvy, you can literally do almost all bill payments through online.
Banks are now promoting online banking and usage of ATM in a big way. While such transactions are free and unlimited some banks started limiting the personal banking transactions. If you visit the bank for normal transactions, beyond the minimum permitted, you will be charged for that. But the availability of large ATM network and online transaction has revolutionalized the Indian banking sector.
How to open a Savings Account?
Savings Account can be opened in individual or joint names. Minors above the age of 10 are also permitted to have this account in their names jointly with parents. Each bank has fixed a minimum balance to be maintained in the savings account. If the balance falls below the threshold limit, there will be a penal interest. If you are maintaining multiple accounts, you have to keep this minimum balance in all such accounts. Minimum balance requirements are as low as Rs.1,000/- in some PSU banks while it is Rs.10,000 and above in some private sector banks.
You have to submit your identity proof, address proof and photographs to open a Savings Account. Introduction by an existing account holder is also required.
Types of Savings Account
- Regular Savings Account
- Salary Account
- Joint Savings Account
- Senior Citizens Savings Account
- Children Savings Account
What is Current Account ?
Current Account is ideal for business people who have to make many transactions on a daily basis. There will be many receipts and payments in such accounts. Banks will permit unlimited transactions, if it is in the home branch. ATM and Cheque book facility is also available in this account.
Current Account will allow business man to collect payments from various locations in the country and also to make payments to various parties in multiple locations. Some banks have started offering multiple location cheques and this helps to speed up the process of collection and payments.
How to open a Current Account?
A Business entity can open Current Account. Along with Address proof and Identity proof, you have to submit the Proof of Business also to open a Current Account. The criteria of minimum balance changes from bank to bank. There are banks which offer zero balance account but charges annual fee. Most banks insist on a minimum balance of Rs.10,000 to Rs.25,000 for Current Account.
Types of Current Account
- Regular Current Account
- Current Account with additional perks
- Premium Current Account
Savings Account and Current Account – Difference
Let us see the difference between Savings Account Vs Current Account
- Who Can open – Individual or Joint Names
- Purpose – To promote saving among investors
- Transaction Limits – Limited transaction allowed in a month. Additional transaction attracts a charge by the bank.
- Also Ideal for salaried person and personal use
- Minimum Balance – have to maintain a minimum balance until it’s a zero balance account
- Documents Required – ID Proof
- Address proof, Photograph, Reference of existing account holder
Advantages of Saving Account
- The advantage of saving account is the interest you get on your deposits.
Interest rates on Savings Account in India
Interest rates on Savings Account in India is in the range of 4-6%
Disadvantages of Saving Account
- The disadvantage of saving account is – Savings Account does not allow Overdraft.
- Another disadvantage is – Interest rates are lower than Recurring deposits and fixed deposits.
- Who Can open – Business Entity
- Purpose- to facilitate multiple regular transactions
- Minimum Balance – Higher amount
- Transaction Limits – No Limits on Transactions.
- Documents required – ID Proof, Address Proof, Photograph, Proof of Business Entity
- Current Account allows overdraft.
Interest rates on Current Account in India
Normally no interest is paid on Current Account in India.
Current Account interest rate in SBI, ICICI or HDFC is Zero.
Is Salary Account Current or Saving ?
A Salary account is a Savings Account.
How to know if Account is Saving or Current ?
There are various ways to know if the account is Current or Saving-
- If you have a passbook, it’s a Savings Account
- You are getting interest on your bank account, then it is a Savings Account.
- If the account is by the name of individual, it is a Savings Account.
- Check your cheque book, its always mentioned there if it is a Savings Account or Current Account
- Go to your nearest bank branch and check whether it is a Savings Account or Current Account.
- Check your passbook and bank statement, it shows the type of account
Why a salaried person uses Savings Account and not a Current Account?
Savings Account is ideal for salaried class as interest is calculated on the basis of daily balance available in the account. Interest rates are even higher if you enable auto sweep facility in your Savings Account. There is no interest payable in Current Account. Instead, some banks charge an annual fee for certain privileged Current Accounts.
Banks offer the facility of zero balance in Savings Account, if you have a corporate salaried account, the same facility is not available in Current Account.
The interest rate, for Savings Account, has been deregulated now and each bank can decide the interest rate. Most banks are still offering 4% interest, while some new generation banks are offering up to 6%- 7% on this.
So now, Do you understand the basic difference between Savings Account and Current Account? Will it help when you shift from a salaried employee to an entrepreneur?
Also Do not forget it to share it with your friends.