Zero balance current accounts have been a hot topic in the business banking community. For many businesses, in fact, they are perhaps their only shot at financial inclusivity.
If you’re looking for a tell-all piece on zero balance current accounts, you’ve landed in the right place.
But first, let’s set some context.
Why is a current account such a big deal?
A current account is an essential banking requirement for any business. With unlimited transactions per month, online banking, and a host of other features, current accounts streamline financial operations and lend legitimacy to the business. They also help separate business assets from personal finances.
However, current accounts have their shortcomings.
Since the volume and amounts of transactions are high, banks do not pay interest on the credit balance of these accounts. Most banks also charge maintenance fees on them. And, another major pain point for businesses is that current accounts often come with a Monthly Average Balance (MAB) requirement.
With that in mind, banks came up with an alternate product to meet the needs of businesses that are too strapped for cash to maintain a MAB. And, that’s how the zero balance current account was born.
But before we talk about that, let’s understand what MAB is.
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.
For many businesses, maintaining MAB is sometimes difficult due to unforeseen expenses, delayed receipts from debtors, or other unexpected changes in the business environment – such as the COVID 19 pandemic.
This is where zero balance current accounts come into the picture.
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.
Zero balance current accounts are a boon, especially for small and medium-sized businesses that desire greater flexibility with their working capital, have a longer debt collection period or have erratic cash flows.
But, there is more to it than meets the eye.
The primary reason why banks offer these accounts is financial inclusion – to ensure that no business goes without a current account. But, in offering these accounts, banks lose out on an important source of revenue: MAB non-maintenance penalties.
This usually 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.
It, therefore, is more prudent to start out with a current account built for your present and future needs. Making the switch at a later point, although possible, is definitely going to cost you time and effort.
The verdict: does your business really need a zero balance current account?
The short answer is no. 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.
As your business grows, so will the amount of money flowing into your account, making it easier for you to maintain your MAB. And, with growth comes the need for a more comprehensive suite of banking services – something a traditional zero balance current account cannot give you.
RazorpayX Current Account: 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.
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 portals
… all with 500 free payouts every month!
The icing on the cake? You can apply for a RazorpayX Current Account in a matter of minutes.
Ready to supercharge your finances?