In a world of increasing digital payments, it has become necessary for every individual and every entity to have a bank account. A bank account is essentially an arrangement between a bank and its customer whereby the customer deposits his money with the bank who in turn may compensate the customer by way of interest. Having a bank account not only allows customers to put away their money but also provides several facilities to the customer such as self-withdrawals and enabling money transfers and facilitating other forms of payment. Bank accounts are of different types and the appropriate type of bank account is to be chosen by the customer as per his/her specific requirements.
This article looks at meaning of and differences between two types of bank accounts – savings account and current account.
Definitions and explanations
Savings account:
A savings account is a personal bank account of a customer maintained with a bank. It is used by an individual essentially to deposit his saved money for safe-keeping, giving it the name ‘savings account’. The other main purpose for operating a savings account by a customer is to earn interest on his saved money.
This account is a personal account of a customer that it is used to deposit his personal money, such as his salary or drawings from his business. A savings account can thus only be opened by an individual customer or an association of individuals such as clubs, societies etc. and not by any artificial legal persons such as a company or a firm running businesses.
Banks offer nominal interest on the balance in the savings bank account of their customers. The interest is generally calculated on a quarterly basis on the average quarterly balance.
Savings bank accounts are utilized for personal transactions such as making payments for personal expenses or making personal investments. Thus, banks impose limit on number of deposit/withdrawals that can be made from savings account. Banks also generally require customers to maintain some minimum balance in their savings bank account failing which they may impose a fee on its customers.
Current account:
A current account is a business bank account of customer maintained with the bank. This account can be opened by any business – in the name of an individual in the case of a sole proprietor or in the legal name of the business in the case of an artificial legal person such as a company or a firm. It is frequently used for monetary business transactions such as depositing business receipts and making business related transfers and payments.
This account generally requires a considerable minimum balance to be maintained. A current account offers several more facilities to its customers such as minimal transaction fees, no limit on number of transactions, overdraft facility etc. Banks thus generally do not offer any interest on the balance in the current bank account of their customers.
Difference between savings account and current account:
The differences between savings account and current account have been detailed below:
1. Meaning
- Savings account is a bank account utilized by individuals/group of individuals to deposit their personal savings.
- Current account is a bank account utilized by businesses (can be individuals or any legal person) to deposit its business receipts as well as to make its business payments.
2. Used for
- Savings bank account is used for personal purposes i.e., for personal monetary transactions, by the account holders.
- Current account is used for business purposes i.e.: for business related monetary transactions, by the account holders.
4. Purpose for maintaining
- Savings bank account are primarily maintained by customers for the safe-keeping of their savings as well as to earn interest on their savings.
- Current accounts are primarily maintained by customers to undertake monetary transactions of their business.
5. Type of customer
- Savings account can only be opened by individuals/group of individuals.
- Current account can be opened either by individuals or any other artificial legal person such as a company or a partnership firm. The current account can be in the individual’s name or the name of their business.
6. Minimum balance
- Savings account generally require maintenance of a low minimum balance. This is generally calculated on a quarterly basis and the quantum can differ from bank to bank.
- Current account, on the other hand requires maintenance of a much higher minimum balance.
7. Interest
- Savings account earn interest for the customers on their account balance. The interest is generally calculated on the average quarterly balance at a rate determined by each individual bank.
- Current accounts generally do not offer any interest to the customers on its account balance.
8. Number of transactions permitted
- Savings bank account generally have restrictions in terms of the number of transactions – deposits and withdrawals permitted.
- Current accounts are primarily opened for business transactions and thus do not have any limit on number of transactions.
9. Overdraft facility
- Savings bank account holders do not get the benefit of overdraft facility i.e.: they cannot withdraw from their bank account more than the balance available.
- Current account holders can get an overdraft facility approved from the bank whereby they can make payments/withdraw money in excess of their bank account balance.
10. Preferred by
- Savings bank account are preferred by individuals such as salaried persons, housewives, students or group of individuals such as clubs or associations who have limited daily transactions.
- Current accounts are preferred by business men or companies and firms that have high volume of daily business transactions.
Conclusion – savings account vs current account:
While savings and current accounts are opened for different purposes, they have one important similarity- ‘liquidity’. From both savings and current accounts, money can be withdrawn almost instantly either through cheque or ATM card. This is a huge advantage of both these type of bank accounts. The selection of type of bank account has to be chosen considering the purpose of opening a bank account. In fact, an individual can have both a savings account and a current account – being able to open multiple in multiple banks as well.
