Generally, everyone’s financial journey begins with opening a bank account. However, the objectives are varied for different people – some may simply seek safe storage of money coupled with a bit of interest income, while the others would intend to use the account to fuel business growth with frequent transactions and payments.
Thus, to serve both their interests, there are two very common types of accounts in the retail and private banking space – Current and savings accounts.
If you are in the initial years of your financial journey and are wondering which account type is the right fit, then you are in the right place. This blog post will discuss the key differences between a Current account and a Savings account to help you decide which account type is right for your financial aspirations.
What is a Current Account?
A current account is primarily used for frequent financial transactions by traders, business people, and entrepreneurs running their companies, firms, trusts, etc.
Traditionally, paper cheques were commonly used for making payments from a current account, and hence, it is also referred to as a Checking Account. This type of account usually offers unlimited transactions but doesn’t provide any interest earnings. It allows flexibility to withdraw more than the actual account balance. But, there is a high minimum balance requirement to avail all the account benefits.
What is a Savings Account?
A savings account is for saving money and earning interest on it. It is ideally designed for salaried individuals who intend to build wealth for their short-term and long-term financial goals. Typically, a savings account offers interest income, and the minimum balance to be maintained is also slightly on the lower side. However, the account holders are allowed a limited number of transactions, and there is no overdraft facility available.
Differences between Current Account and Savings Account
Now that you understand the basics of a current and savings account, the key differences are between the two are as follows-
|Criteria||Current Account||Savings Account|
|Purpose||To carry out frequent business and trade transactions.||To save and accumulate wealth for future goals.|
|Suitability||It is suitable for traders, business owners, companies, firms, etc.||It is appropriate for salaried people with regular income.|
|Interest Rate||Mostly doesn’t provide any interest earning.||Offers interest-earning linked to a benchmark, such as a bank rate.|
|Transaction Limit||There are no restrictions on the number of transactions.||Limited number of transactions are offered.|
|Balance Maintenance||The minimum balance to be maintained is high.||The minimum balance to be maintained is low.|
|Borrowing Ability||The account holders are allowed to overdraw for the short-term.||There is no overdraft facility available for the account holders.|
Current accounts allow innumerable daily business transactions without any fuss. At times, banks also offer short-term overdraft facilities to prevent a shortage of funds. On the other hand, savings accounts are intended for people who want to save and grow their wealth. Banks offer interest on the parked money that funds the corpus growth.
Current accounts are apt for non-individuals, such as proprietors, companies, firms, trusts, etc. On the other hand, savings accounts are tailor-made appropriate for salaried individuals with a steady income flow and lower requirement for frequent withdrawals.
Current accounts usually don’t provide any interest income. However, few banks have started proposing nominal interest nowadays. On the other hand, the bank deposits under savings accounts enjoy periodic interest, ranging between 3.5% to 4% per annum.
There are no restraints on the number of transactions for current account holders. They can make several deposits or withdrawals without any hassles. On the other hand, savings account holders may be charged a fee if they exceed a certain number of permitted transactions.
Depending on the account type and the available benefits, the current account holders need to maintain significantly higher balances, which may be upwards of Rs. 1,00,000. On the other hand, the minimum balance requirement for savings accounts to keep it operational may be as small as Rs. 500, depending on the bank and the account type.
The current account holders can avail of the short-term overdrawing facility, which means they can withdraw money higher than their actual account balance. On the other hand, the savings account holders cannot overdraw their accounts.
Lately, current accounts and savings accounts offered by Neobanks have been stealing the spotlight in the fintech landscape.
Tech-savvy neobanks swear by the host of services they offer, some of them being – multi-access collaboration, end-to-end automation, real-time notifications and transparency.
Choose the best current account
Trusted by 1000+ leading startups, current accounts supercharged by RazorpayX is a must-have for fast-growing startups. With RazorpayX you can make instant payouts via an easy-to-use dashboard, schedule payments, generate financial reports, process payroll in 10 minutes, automate GST, TDS and advance tax payments in 30 seconds and so much more! It doesn’t even end here, you’re not charged anything at all for the first 500 transactions that you make every month.
Choose the best savings account
Fi Money & Jupiter Money are the new cool kids in the block for everybody who wants to keep a track of their spending, make transactions, invest money and perform simple banking operations right at their fingertips. Apart from that they also offer additional rewards and benefits to incentivise savings.