Saving Account and Current Account (Compare and Contrast)
The two most common types of accounts managed by businesses as well as individuals are saving account and current account. Every time we walk into the ATM to use our card, it asks us to choose between saving and current account. Both these accounts are important and serve the needs of people with varying requirements. In India, almost all banks offer the services of savings and current account for example- HDFC Bank, ICICI Bank, Yes Bank, Axis Bank, and many others. Although the ultimate functioning of both the accounts is managing funds yet they differ in the way of operating. They differ in terms of charges, fees, interest earned, features, etc.
As the name suggests, the main purpose of the savings accounts to encourage savings. The account holder receives a large amount of interest rate on the deposited amount. The rate of interest offered might vary from bank to bank on the basis of bank policies, funds in the account, type of savings account and so on. A minimum of the pre-specified amount is to be maintained in the savings account. There is an option for an individual as well as joint ownership; people can choose what suits them best. There is a limit on the number of withdrawals that can be made in a month; any further withdrawals are charged with some fee. These accounts have the cheque issuing facility and the amount of interest paid on the deposited amount ranges between 4-6%.
Generally, current accounts are used for business transactions. They are a means to deposit cheque and bill payments. They fulfill the purpose of regular transactions. Furthermore, this type of account is most suited for organizations, firms, businessmen, etc. There is no interest offered on the amount held in the current account, though, there might be a few exceptions depending on various bank policies. Unlike a savings account, the current account has no withdrawal limits. Therefore, there is no fee even if there are many withdrawals every month. If the account holder has an overdraft facility, he can access more funding. Similar to the savings account, current account also needs a minimum amount of balance maintained. The fee is levied on ATM card, overdraft facility, online banking.
Difference between Saving Account and Current Account:
A Savings account is typically used for short-term or long-term monetary needs (medical emergency, shopping, etc.) whereas current account serves the purpose of frequent financial transactions (bill payment, rent, and so on). They differ in the nature of their operation and purpose. Now, Banks have changed their guidelines and there doesn’t seem to be much difference between the two. However, there are still some major differences between the Savings and Current Account. The main use of savings accounts to save money, as for current account it is to deposit check and management of payments. The rate of interest in saving account is comparatively higher. The facilities like overdraft and automatic bill payments are not offered in Savings Account.
Pros and Cons of Saving Account:
- The ability to earn interest is one of the main advantages of Savings Account.
- These accounts are cheaper to open.
- The minimum balance that is required to maintain the account is also low.
- The main drawback of Savings Account is that of the withdrawal limit. For example- a certain amount can be withdrawn in a day.
- The mode of payments are also limited in Saving Account, it only offers ATM or debit card/credit card and bank deposit.
Pros and Cons of Current Account:
- Current Account offers various medium of payments. It is an ideal account for individuals who make frequent transactions.
- There are no transaction limits on the Current Account.
- The Current Account provides the account holder the ability to manage finances and organize their business.
- In addition, the benefit of the overdraft facility is also available in Current Account.
- The major drawback of the Current Account is interest. There is no interest paid on the deposited amount.
- This account is comparatively difficult to open and it is also very expensive.
- Similar to its opening, the maintenance of the Current Account is also very high.
- If the Account is not managed properly, there might be some serious consequences. It can cause the loss of money and also imprisonment if the cheque bounces.
Before opening a bank account, it is better to explore the available options, a fair knowledge of the benefits and limitations of both account types might come in handy. It will be easier to decide which type of bank accounts suit your needs- Savings or Current Account. Despite their pros and cons, maximizing the benefits and minimizing the drawbacks depend on the efficient and effective management on part of the account holder.