Current and savings accounts are two of the most commonly used types of bank accounts. Both are designed to meet different financial needs of individuals, and it is important to understand their differences in order to choose the right type of account for your specific needs. In this article, we will discuss the key differences between current account and savings account in the Indian context.
Purpose of the account
A savings account is designed for individuals who want to save money for future use. It offers a moderate rate of interest on the balance in the account, and is ideal for individuals who want to save money on a regular basis. A current account, on the other hand, is designed for business owners and individuals who need to carry out frequent transactions. It does not pay any interest on the balance in the account, but allows unlimited transactions.
Minimum balance requirement
Most savings accounts in India require a minimum balance to be maintained in the account at all times. The minimum balance requirement varies from bank to bank, but it is usually lower for basic savings accounts. Failure to maintain the minimum balance may result in penalties and other charges. Current accounts, on the other hand, generally require a higher minimum balance compared to savings accounts. This is because current accounts are designed for high-volume transactions, and maintaining a higher balance ensures that the account holder can cover the cost of these transactions.
Fees and charges
Savings accounts generally do not have any fees or charges associated with them. However, some banks may charge a nominal fee for certain transactions or services, such as issuing a duplicate passbook or ATM card. Current accounts, on the other hand, usually have a monthly maintenance fee, transaction fees, and other charges. These fees and charges may vary depending on the bank and the type of current account.
Savings accounts offer a modest rate of interest on the balance in the account. The interest rate may vary depending on the bank and the balance in the account. Some banks also offer higher interest rates for senior citizens and women. Current accounts, on the other hand, do not pay any interest on the balance in the account.
An overdraft facility allows an individual to withdraw more money from their account than the balance available in the account, up to a certain limit. This facility is generally available only in current accounts. The overdraft limit is determined based on the creditworthiness of the account holder and the balance maintained in the account. The interest rate on the overdraft amount is generally higher than the interest rate on a regular loan.
The eligibility criteria for opening a savings account are relatively simple. Any individual who is a citizen of India can open a savings account. The documentation required to open a savings account is also minimal, usually consisting of proof of identity and address. Current accounts, on the other hand, are generally available only to businesses and individuals who need to carry out high-volume transactions. The eligibility criteria to open a current account online or offline are more stringent, and may require the submission of additional documentation, such as proof of business registration and financial statements.
In conclusion, both current and savings accounts have their own advantages and disadvantages. While savings accounts are designed for individuals who want to save money, current accounts are designed for businesses and individuals who need to carry out frequent transactions. Before choosing an account type, it is important to consider your financial needs and goals, and to choose an account that meets your specific requirements.