Powerful current accounts always come with a caveat; a minimum balance requirement. Whether it is a few ten thousand or a few lakhs, most accounts are not zero balance current accounts.
Would a zero balance current account really be so beneficial to businesses? Here’s a blog explaining all you need to know about current accounts and their minimum balance requirement.
Importance of a Current Account for Business
A current account is an essential banking requirement for any business. Besides separating business assets from personal finance, a current account provides features like unlimited transactions, overdraft facilities, and business tool integrations.
Newer, tech-enabled current account providers like RazorpayX Business Banking+ even offer automated compliance, payroll and vendor management tools and so much more.
Current accounts generally have a higher minimum balance requirement than savings banks, only because of these special features. However, it can be difficult for startups and small businesses to keep money locked away as a minimum balance requirement.
Why then, is this minimum balance requirement so important?
What is Monthly Average Balance?
Monthly Average Balance, sometimes also called Minimum Average Balance, is the average closing balance of your account on each day of the month.
MAB = sum of closing balances each day of the month/number of days in the month.
Not maintaining the MAB in your account can draw penalties from your bank – based on the extent of your shortfall.
New business owners or small business owners might not see the merit in maintaining a minimum balance. After all, this is money that could be put to good use elsewhere.
This is why many small business owners look for zero balance current accounts; or current accounts that don’t have a minimum balance maintenance requirement.
Read more: Why a Current Account is Crucial for Businesses
What is a Zero Balance Current Account?
A zero-balance current account allows you to carry out transactions without the obligation of maintaining a Monthly Average Balance.
To small business owners, zero balance current accounts can help them go from 0 to 1 – to get their business off the ground and running. But zero balance current accounts do not provide the infrastructure and support that a fast-growing business needs.
Banks don’t make any revenue from zero balance current accounts, which translates into banks offering limited features with these accounts.
While limited features are okay to start with, they might make things difficult as your business scales, and you need more banking features and services at your disposal to manage your money efficiently.
For this reason, it is best to start out with a current account built for your present and future needs.
If you’re using a zero balance current account and realize the need for a more robust current account, it is absolutely possible to make the switch.
Drawbacks of a Zero Balance Current Account
There are many reasons why business owners choose to open a more robust current account with a minimum balance requirement over a zero balance account.
In most cases, the minimum balance requirement is a small amount – as is the penalty charged for non-maintenance.
Zero balance accounts do not provide most features that businesses need for growth:
Limited functionality: Zero-balance accfounts often lack essential features like overdraft facilities, cheque issuance, or integration with business tools, hindering a company’s ability to manage cash flow, handle larger transactions, or streamline financial processes.
Higher transaction costs: While you avoid minimum balance penalties, zero-balance accounts often charge per-transaction fees, which can quickly mount up for businesses with frequent activity. This negates the cost advantage and can even make them more expensive than traditional current accounts in the long run.
Limited credit access: Businesses with zero-balance accounts may struggle to secure loans or lines of credit due to perceived financial instability. This can restrict their ability to invest in growth opportunities or respond to emergencies.
Potential reputational risks: Frequent account closures due to inactivity or insufficient funds can reflect poorly on a business’s image and raise concerns about its financial health.
Unsuitable for long-term needs: As a business grows, its financial needs evolve. Zero-balance accounts may become increasingly restrictive, requiring an eventual transition to a more comprehensive current account, potentially causing disruption and additional costs.
Get Your Smart Current Account
Advantages of Zero-Balance Current Account
Here are the few advantages of having a zero balance current account.
- No Minimum Balance Requirement: Zero-balance current accounts do not impose any minimum balance requirement. This allows businesses or individuals to operate the account without the obligation of maintaining a certain minimum balance. It offers flexibility and eliminates the risk of penalties or charges for falling below the minimum balance threshold.
- Entry-Level Banking Solution: For individuals or businesses new to banking or with limited banking needs, a zero-balance current account serves as an entry-level solution. It provides the necessary banking services without the complexities and financial commitments associated with maintaining minimum balances.
- Financial Inclusion: Zero-balance current accounts promote financial inclusion by making basic banking services accessible to a broader range of individuals and businesses. It helps bridge the gap between the unbanked population and the formal financial system.
Does Your Business Need a Zero Balance Current Account?
The short answer is no.
As your business grows, so will the amount of money flowing into your account, making it easier for you to maintain your MAB.
With growth comes the need for a more comprehensive suite of banking services – something a traditional zero-balance current account cannot give you.
There are numerous benefits to having a fully-loaded current account like Razorpay X-powered Current Account in the long run.
Cost Savings – With solutions like RazorpayX Business Banking+, businesses can save costs on multiple fronts like transaction fees, foreign exchange fees, and other banking charges.
Improved Financial Efficiency – With access to real–time insights into finances and automated expense management capabilities, businesses can gain better financial visibility and improve their financial efficiency.
Increased Security – RazorpayX-powered Current Accounts are equipped with the latest security protocols and risk management techniques, ensuring businesses gain complete security for their finances.
Improved Cash Flow – With real–time insights into finances, businesses can manage their cash flow more efficiently and reduce their chances of running low on funds.
Automated Solutions – Automated solutions like invoice generation, payment reminders and payment reconciliation help businesses save time and resources.
Steps to Open a Zero Balance Current Account Online
When opening a current account, it’s important to consider several factors to ensure you choose the right account that meets your needs. Here are some tips to keep in mind:
- Research and choose a bank that offers zero-balance current accounts online.
- Visit the bank’s website and locate the section for opening an account online.
- Select the option for a zero-balance current account.
- Fill out the online application form with the required personal and business details.
- Prepare the necessary KYC documents such as identification proof and address proof.
- Upload scanned or photographed copies of your KYC documents.
- Review the application form for accuracy and submit it online.
- Wait for the bank to initiate the verification process.
- Provide any additional information or documents as requested by the bank.
- Receive confirmation from the bank once your application is approved.
- Follow the instructions to activate your account and set up online banking access.
Documents Needed to Open Zero-Balance Current Account Online
Here are the documents typically needed to open a zero-balance current account.
- Identification Proof: Valid identification document (e.g., passport, driver’s license, Aadhaar card, PAN card).
- Address Proof: Utility bills, rental agreements, bank statements, or government-issued address proofs.
- Photographs: Recent passport-sized photographs (usually 2-3).
- KYC Form: Bank-provided Know Your Customer (KYC) form.
- Business Documents (if applicable): Certificate of Incorporation, Memorandum and Articles of Association, Partnership Deed, GST registration certificate, etc.
Tips to Keep in Mind While Opening a Current Account
- Research Different Banks: Research and compare the offerings of different banks or financial institutions. Look into factors such as account fees, transaction charges, interest rates, and additional services provided. Consider their reputation, customer service quality, and branch/ATM accessibility.
- Identify Your Requirements: Determine your specific requirements for the current account. Consider factors like the average monthly transaction volume, the need for overdraft facilities, access to online banking, and specific features you may require for your business or personal finances.
- Fees and Charges: Understand the fees and charges associated with the current account. Check if there are monthly maintenance fees, transaction fees, ATM withdrawal charges, chequebook fees, or any other charges that may apply. Compare these charges across different banks to find the most cost-effective option.
- Account Features: Evaluate the features offered with the current account. Look for features like online banking, mobile banking apps, debit card facilities, and other conveniences that align with your banking preferences. Ensure that the bank provides the necessary services and tools you require for your banking activities.
- Overdraft Facilities: If you anticipate the need for an overdraft facility, check the terms and conditions of the current account. Understand the interest rates, charges, and repayment terms associated with overdraft facilities. Compare these features across banks to find the most suitable option for your needs.
- Minimum Balance Requirement: Some current accounts may have a minimum balance requirement that needs to be maintained. Consider whether you can comfortably maintain the required minimum balance without incurring penalties or fees. If the minimum balance requirement is too high, it may be worth considering other account options.
- Account Support and Customer Service: Assess the quality of customer support provided by the bank. Consider factors such as the availability of dedicated account managers, responsiveness to queries or issues, and the overall reputation for customer service. Opt for a bank that offers reliable and efficient support channels.
- Read the Terms and Conditions: Carefully review the terms and conditions associated with the current account before opening it. Pay attention to the clauses related to fees, charges, interest rates, account closure, and any other important provisions. Make sure you fully understand and agree to the terms before proceeding.
RazorpayX Business Banking+: the end-to-end banking solution you need
Built for growing businesses, the RazorpayX Current Account is a comprehensive business banking hub that streamlines your banking operations. Today companies like Swiggy, Hotstar, Nykaa, and Flipkart are a part of our ever-growing family.
Apart from the standard operations of a traditional current account, your RazorpayX Current Account allows you to
- Add beneficiaries and transact instantly, without a cooling period
- Gain detailed insights into your finances
- Automate payouts with powerful APIs
- Set up an efficient approval workflow
- Access a suite of smart apps and integrations, like Payout Links, Vendor Payments, Payroll
- Make tax payments from one dashboard – without having to hop portals20
The icing on the cake? You can apply for a RazorpayX Current Account in a matter of minutes.
Ready to supercharge your finances?
Frequently Asked Questions
What is zero balance current account?
A zero balance current account allows you to carry out transactions without the obligation of maintaining a Monthly Average Balance.
What is MAB(Monthly Average Balance)?
Monthly Average Balance, sometimes also called Minimum Average Balance, is the average closing balance of your account on each day of the month.
MAB = sum of closing balances each day of the month/ number of days in the month.
Does your business need a zero balance current account?
In most cases, the minimum balance requirement is a small amount – as is the penalty charged for non-maintenance.
On the other hand, there are numerous benefits to having a fully-loaded current account in the long run.
Can a current account be opened online?
Yes, current accounts can often be opened online. Many banks and financial institutions provide the option to open a current account through their website or mobile banking application. Online account opening offers convenience and saves time as it eliminates the need to visit a physical branch. The process typically involves filling out an online application form, providing necessary documents and identification proofs electronically, and undergoing verification processes.
Which bank is best for a zero balance current account in India?
The "best" bank for a zero-balance current account in India can vary based on individual needs and preferences. However, here are a few banks that are known to offer zero-balance current accounts in India:
State Bank of India (SBI)
HDFC Bank
ICICI Bank
Axis Bank
Kotak Mahindra Bank