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Considering a Current Account for your business? Keep these factors in mind before opening one
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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A Current Account is a variant of a bank account relevant to individuals who run a company or business. These accounts can be opened with any private or public sector bank. The major benefits of the account are high liquidity and the provision to make significant ticket value payments conveniently. Besides this, you are also permitted free cash withdrawal of big-ticket amounts from the home branch or non-home branch. However, all these benefits come with certain conditions or limitations that you must be aware of.
Listed here are crucial parameters you must check to select the correct type of Current Account:
Minimum balance requirement
The minimum balance is the amount that you must keep in your Current Account to avoid account deactivation or penalty for non-maintenance. Remember, for a Current Account, the Average Quarterly Balance requirement is higher as compared to Savings Accounts. Current accounts come with higher average quarterly balance requirements due to the provision of high-end benefits, which may not be available in a regular savings bank account. Such benefits include free demand draft up to a specific limit at non-home branch locations, free cheque payments and collections, free cheque collection via speed clearing, free multi cheque books per month, free cash withdrawal and deposit at a home branch and up to a specific limit at a non-home branch, availability of home banking services, i.e., usually up to 3 cheques or cash pickup and delivery, free net banking, phone banking and SMS banking solutions, free RTGS and NEFT services at branches or via net banking etc. Thus, make sure to check the minimum balance required before you select any Current Account. Remember to opt for an account that offers optimal benefits at a minimal balance requirement.
Check if the bank is offering you an overdraft facility with a higher limit at the lowest interest rate. A higher limit on overdraft facility is crucial to avail as it helps to maintain your business stability in the event of insufficient working capital or delay in receiving the cash payment. As the overdraft facility is an extended limit, which is over and above your account balance, it can allow you to easily meet your pending payments via cheques or pay orders.
Remember opting for a higher limit on the overdraft will not lead to any additional cost, as interest on this facility is only charged on the used amount. You can repay the used amount through the EMI option based on your convenience.
Fees and charges
Make sure to check the various fees that the Current Account usually charges. Note that these charges may differ from account to account. You can get these charges from the bank’s MITC (most important terms and conditions) or GSFC (general schedule of features and charges) section. Check the charges of those features that you would frequently use, like the demand draft, RTGS, NEFT, IMPS, chequebook, on-call request, Non-maintenance Charges of Average Quarterly Balance, cash deposit limit etc. Note that all these mentioned services often are free in the Current Account up to a certain limit, post which charges are applicable. Thus, knowing the charges of these features will make you well-equipped for scenarios when you exceed the service limit. Ensure to select the account accruing the lowest fees and offering optimal benefits.
Ending note
Apply for a Current Account that best matches your business requirements and preference. For this, ensure to follow the above three major factors to zero on a suitable account.
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