17 AUGUST, 2023

A savings account and a current account are two types of bank accounts, each serving its own specific purpose. A savings account is for individuals to carry out their day-to-day banking transactions and to build their savings and wealth. On the other hand, current accounts for businesses are designed to facilitate frequent spending and transactions with a variety of stakeholders. A current account for business comes with several additional features that support and boost a business’s activities.

Let us explore the differences between a current account and a savings account to understand why it is essential for every business to have a current account in place.

1. Transaction limits

Beyond a certain limit, banking transactions such as withdrawals, deposits, NEFT and RTGS, and more are chargeable. A savings account comes with lower transaction limits for both the frequency and the amount of the transactions, as it is meant for an individual’s personal use. This is one of the major advantages of a current account – it not only has a higher limit of free transactions but also has additional services and features. For instance, current accounts tend to come with a home-banking service that includes free daily visits for cheque and cash pickup and delivery from your home or office.

2. Overdraft facility

In your personal life, when you require additional funds to meet even short-term expenditures, you need to go through the process of applying for loans. However, in the case of a current account for business, you can draw funds in excess of your current account balance without having to go through any process. Each current account comes with an overdraft facility up to a certain limit, and you can use it to meet your working capital requirements when you are temporarily short on funds or unanticipated expenses have cropped up.

3. Interest on balance

One of the major differences between a savings account and a current account is this. The bank pays you interest on your balance in a savings account, and the rate of interest can be anywhere between 2% and 7% depending on the type of bank you have your account with. A current account for business, however, pays no interest on your balance. This is because the basic purpose of both these accounts is widely different. A current account for start-ups, home-based businesses, etc., is not a means to build wealth or earn returns. It is to facilitate day-to-day business transactions with ease and efficiency.

Additional Read: Types of Current Accounts

4. Minimum balance requirement

Both savings accounts and current accounts for business come with a minimum balance requirement. This means that you need to have at least that amount of funds in your bank to avoid penalty charges or interest. However, savings accounts generally come with a lower minimum balance requirement than current accounts. The savings account minimum balance can be as low as Rs 1,000, and there are also zero-balance savings accounts. Current accounts for business, however, have a minimum balance starting from Rs. 10,000 and can go up to lakhs. The reason for this is that you get to capitalise on all the advantages of a current account for your business that are not available in a savings account.

Other than all the additional benefits and value-added services of a current account for your business, it also helps you with the organised and convenient tracking of your business cash inflows and outflows by separating them from your personal transactions. Hence, you should not consider using your existing savings account for your business and instead open a current account right away!

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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.