For regular banking transactions, banks offer two types of bank accounts: savings accounts and current accounts. While most people have a savings account, current accounts cater to the needs of a limited set.
If you're like most young people, you're probably wondering what the difference is between a savings account and a current account. Both seem to offer the ability to store your money, but which is right for you? Here's a breakdown of the key differences between the two:
Eligibility
A current account can be opened by an individual, Sole Proprietorship, partnership firm, trust, Limited Liability Partnership, Private limited and limited company, etc., but a savings account can be opened only by certain entities. The RBI has listed some entities that are not eligible to open a savings bank account, such as an organization, company, or partnership firm. Also, while an individual can have a savings account in their own name, the primary purpose of having a Current Account is to conduct frequent business/financial transactions.
Interest rate
As per RBI guidelines, banks cannot offer interest on money lying in current accounts, irrespective of the amount. On the other hand, savings accounts are eligible for interest. IDFC FIRST Bank, for example, offers savings accounts with among the highest interest rates in the industry.
Withdrawal limit
Banks allow a certain number of cash withdrawal transactions on a savings account without levying any fee. Beyond this limit, charges will apply. There is, however, no limit on the amount or frequency of withdrawals from a current account. Charges for such withdrawals depend on the fees applicable as per the type of current account variant. Even the maximum amount one can withdraw from an ATM could vary depending on the type of account and type of Debit card issued for the account.
Minimum balance
The minimum amount one is required to maintain in a bank account varies across banks. However, for savings accounts, you generally have to maintain a minimum average monthly or quarterly balance. But this will be lower than the balance required to be maintained in a current account.
Overdraft
In the case of a savings bank account, you are allowed to withdraw cash or make fund transfers only up to the amount lying in the account. In the case of a current account that has an overdraft or a cash credit facility, you can withdraw beyond the balance available.
Suitability
A savings account is suitable for salaried people, pensioners, students, and housewives who carry out only a limited number of banking transactions for personal purposes. A current account is more suited for entities that need to do multiple business and trade transactions on a daily basis for commercial purposes - such as a partnership firm, proprietorship, or a limited company etc.
Savings account vs current account: Which one to choose?
Which type of account is more suitable depends on your specific needs. Both savings and current accounts offer various facilities such as online banking, ATM/debit card, etc. Though the minimum balance to be maintained differs, there is no restriction on the maximum amount you can maintain in either type of account. Also, you can deposit any amount in both.
A savings account is great for those who want to save up for a specific goal, such as a car or a down payment of a house. It is also beneficial for depositing personal savings or for creating an emergency fund. A savings account provides liquidity in funds along with earnings in the form of interest. Your money will earn interest over time, which can help it grow. A current account is primarily designed to facilitate frequent/regular financial transactions by traders, business people, and entrepreneurs running their companies, firms, trusts, etc.
So, which account is right for you? It really depends on your needs and what you're trying to achieve. If you're still not sure, talk to your bank or financial advisor, and they can help you decide.
Further, even in the case of a savings account, you can choose between a no-frills account and a regular savings account that offers various facilities, such as a debit card, chequebook facility, and internet banking.
You can open a savings account online with IDFC FIRST Bank and avail the benefits of high interest rates (in the case of a savings account) as well as benefit from cutting-edge, user-friendly mobile banking technology.!
