Banking comes in many shapes and sizes. While you might be familiar with cash, credit cards, checkbooks, and even bitcoin, the most common forms of banking are current accounts and savings accounts. People use these two types of accounts every day, but it’s essential to understand how they work so that you can make the best financial decisions for yourself.
To help ensure you have a proper understanding of the differences between current and savings accounts, let’s review some basic information about each type of account.
What is a Current Account?
Current accounts are an everyday necessity for most people—they’re where you keep your money to pay bills as well as any spare spending money. If a friend wants to transfer money into your account or vice versa, they’ll likely ask for your bank details via bank transfer—that could be through online banking or over the phone.
Your current account is also where any income such as your salary goes when it lands in your bank account. Most people manage their current account in one way or another every single day; whether that’s withdrawing cash from an ATM (cash machine), using a debit card at a shop or restaurant, or simply checking their balance online.
What is a Savings Account?
Savings accounts often offer much better interest rates than current accounts because banks want customers to leave their money in their savings rather than spending with them every day.
Despite this being more beneficial to customers, short-term interest rates can be quite low depending on the economy, so if you’ve got some extra cash lying around, think about whether investing might suit your situation better than stashing it away long-term in a savings account.
Now let’s look into the key differences between a current account and a savings account
Current Accounts Vs Savings Accounts
Both types of accounts are beneficial to all individuals or even groups, but it is in the processes that are allowed that go with the account and the specific amounts that can be transacted that make them differ.
Suitability
Current accounts are best suited for traders and businessmen, who have a lot of transactions happening every day as they receive or give goods/ products/ services to their customers/ clients.
Current accounts encourage you to deposit big sums of money.
Current accounts are designed to encourage their customers to deposit large sums of money. The customer will have to maintain a minimum balance in their account, but in return, they can deposit unlimited amounts of money.
There is no limit on the number of withdrawals the customer can make from their current account. You can apply for a checkbook or debit card and also apply for an overdraft facility from your bank if you want to withdraw higher amounts than what’s already present in your account.
Savings accounts are best suited for people who have a regular monthly income and wish to save part of it.
Savings accounts are best suited for people who have a regular monthly income and wish to save part of it. To be able to save, you need to be disciplined about saving, not withdraw your money too frequently, and have a disciplined spending pattern – in other words, spend less than you earn. If this is something that interests you, then a savings account may make sense for you or your family.
This also means that a savings account is a good choice for individuals who would want to achieve a short-term financial goal and be able to save up for a large purchase or investment.
Long-term financial goals would be better achieved with other financing options rather than just a savings account.
Opening the Account
Opening either account would call for the same requirements.
Opening either type of account should take much less time than finishing reading this article! You’ll need some form of ID—such as a passport or birth certificate—as well as proof of address such as a bank statement from another financial institution.
Although depending on how premium the account is, there may be extra requirements asked of you in order to open an account.
Today there are banks wherein you can open an account via their mobile app, this is for both savings and current.
Withdrawal
A current account holder can withdraw money any number of times in a day.
This is the biggest difference between current and savings accounts. A person can withdraw money from a savings account only three to four times in a month. Withdrawals more than this could attract penalties or may need to have further coordination with the bank or even go through an over-the-counter process in order to withdraw money.
This is because current accounts are meant for transactions, and not really for savings.
Interest Rates
The interest rate on a current account is lower than what you get on a savings account.
The interest rate will be lower on a current account than what you’d get with a savings account. There may be some current accounts that offer a higher interest rate, but they are few and far between.
The reason for this is that the rates of interest on savings accounts are usually higher. This is because of the number of transactions, meaning the bank has a hold of your money longer due to the lesser number of withdrawals or transactions.
However, there are some banks who have started offering zero or close to zero percent interest on the money in your savings account in exchange for no-fee banking — so it’s not always the case that you’ll earn more from your savings account than your current account.
Both accounts are suitable for everyone’s needs, but not for everyone’s job or lifestyle.
Given the nature of the number of possible withdrawals and deposits between a savings account or a current account, it follows that certain professions would go best with each. A current account would suit the best for business owners, entrepreneurs, or forex traders who regularly make transactions within a day.
A savings account as mentioned is best for a regular employee who is expecting a monthly or even weekly salary in order to save and budget for their living expenses. But also for younger folk, parents would usually open their kids a savings account at a young age wherein they would deposit sums that would go towards their future.
Specifically, a time savings account would be a great option for parents who are saving for their kids. This type of savings account has a set time frame wherein the money in the account may be withdrawn.
Minimum Balance
A minimum balance is a basic requirement that must be met and maintained for both savings and current accounts holders
Both accounts would usually come with a minimum or maintaining balance that must be kept on a monthly or annual basis. The minimum or maintaining balance of a current account is usually higher than a savings account.
In India, the lowest minimum balance for a savings account can start at INR 250 up to INR 500, while there are options with zero maintaining balance, these accounts usually come with a low annual fee for the account.
This key difference is essentially the pivot point of both accounts, the maintaining balance is a hurdle that anyone who wishes to open an account needs to achieve.
It goes without saying that, in order to open a savings account you must already have actual savings that you would like to enter into the bank. Whilst for a current account, the lower maintaining balance is to attract more customers who need a place to do their regular transactions in an orderly and secured manner.
How To Choose Between A Current Account Vs Savings Account
You should decide which one is suitable for you, based on your needs and preferences. Current account or savings account? It’s a tough question, but ultimately you should decide which one is suitable for you, based on your needs and preferences.
Think about whether you have a regular monthly income that you want to put into an account and earn interest from it. If this is the case, then a savings account may be more suitable for you.
As long as your money stays in the savings account, it will grow with time due to compound interest. Investing your money in a high-yield savings account means that your money will grow at a much faster rate. Withdrawing any amount of money before the end of each month would mean that there is no interest on whatever amount has been withdrawn.
If you have a large sum of money to deposit, then opting for a current account may be better because they usually do not offer any interest rates on deposits made.
But if you are looking to make frequent withdrawals from your bank accounts monthly, then a current bank account may be more useful especially if you need access to additional services like checkbooks, overdraft facilities, etc.
So make sure to assess first your needs and capacity before opening an account, and take note of these helpful reminders before you keep for the sake of your money and future transactions with a bank.
