Most of us were initiated into the world of banking with a Savings Account. Then, we gradually added a Fixed Deposit or a Recurring Deposit account to the collection. Then there was the elusive Current Account, which we may or may not have needed to open. We always had a vague idea about how a Current Account works (you know the overdraft facility and all that), but never really understood its functions clearly. This article aims to highlight the differences between a Savings and a Current Account and will also help to clear the haze around the nature of a Current Account.
What is a Savings Account?
A Savings Account is the most common type of bank account. Almost every person you know will have a Savings Account or two. You can open a Savings Account with any public-sector or private-sector bank. As the name suggests, the purpose of a Savings Account is to encourage people to save. How is depositing money in a bank account saving? Well, when you deposit money in a Savings Account, you get interest on it. The more money you deposit in your account, the more you earn in interest. This is not to say that your money gets locked in a Savings Account as with other investment options. You can deposit and withdraw money freely from a Savings Account and the interest is computed on the average balance maintained for a certain tenure (say quarterly). Hence, a Savings Account is the first step in personal money management exercises. It’s also a good choice for individuals earning a fixed salary.
What is a Current Account?
As with a Savings Account, you can open a Current Account with any public or private-sector bank. However, it makes sense only for businesses because no interest is given on the balance in a Current Account but deposits and withdrawals are unlimited and do not attract a fee. In essence, it’s like a Savings Account, but with add-on features that can help businesses. A Current Account has many advantages. It is perfect for businesses and companies where free flow of liquidity is essential to keep the engine chugging. You also get an overdraft facility, payment on standing instructions, apart from unlimited withdrawals.
With the basics covered, let’s look at the following table to understand the differences between the two.
Wasn’t that simple? We hope we’ve clarified all your doubts on the two accounts. If you have something to say about a Savings or Current Account, leave us a comment in the comments section below.
