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Mutual Funds | 28 Aug 2021

How Does A Savings Account Differ From A Current Account

A majority of people in the world opt for opening a bank account due to its importance in modern-day living. Multiple tasks arise when the need comes for various payments to your business partners or your shopping. But they have to access their bank accounts to keep going with the payments. Then comes the task of choosing a bank account through which you continue with your cash paying.

The task of choosing a bank account can be challenging at the time of payments or the opening of a bank account. Mostly, people involved in businesses or jobs opt for opening a bank account for their convenience in their payments and savings. The most common types of bank accounts are the savings account and the current account.

Many of you might find it challenging to choose between a savings account and a current account. The choice between these bank accounts depends totally on your banking needs and carrying out your everyday tasks. We will brief you on the key differences between a savings account and a current account here.

A savings account is the one that is opened for saving money for your future use, while a current account is the one that is used to deposit money to carry out your everyday business transactions. But this basic information is not enough for you to decide between both the accounts. So for your convenience, we will explore the main differences between both of them.

Savings account

A savings account is an account in which you can save a portion of your earned money in a banking or financial institution. Opening a savings account serves you with savings and helps you earn a high-interest rate on your invested money. With a savings account, you get assurance for the safety of your money, and you can enjoy the flexibility of withdrawing your money when the time arises.

However, you might experience some withdrawal limitations with some banking institutions, but most of them provide exceptional flexibility and help you withdraw your money during emergencies. You can fulfill your short-term goals or save the amounts you don't want to spend anywhere with these accounts. This ensures a promising future for your family and works as a financial cushion during any future emergency.

Current account

The current account is the one that plays an essential role in recording a nation’s cash transactions with the rest of the world. It is suitable for the people who run their own businesses. They help the customers who carry out large amounts of transactions with the bank on a regular basis. This helps the account holder to carry out his business smoothly with no restrictions or limitations.

As an account holder of a current account, you don't have to face any limitation on the withdrawals and depositing of your money. You can withdraw any amount of money to carry out your day-to-day business and deposit any amounts of cash in your current account. Also, you don't have to provide an early notice for any withdrawal or depositing of your cash.

Key differences between a savings account and a current account

  1. Purpose

• Savings account:

The savings account is mainly opened for the purpose of savings. People generally open savings accounts to save a portion of their earned income for their future use. With a savings account, they get assurance for the safety of their money and earn attractive interest rates and boost their saved amounts. It is designed in a way so that it can encourage and promote savings.

• Current account:

As told above, current account is opened by a person to carry out his day-to-day transactions. The transactions involved in the regular business are generally very high, which makes it difficult for a person to arrange it all by himself. Generally, the people who opt for the current account are the ones who own business enterprises of their own. This account works as a financial partner for a person by helping him with his regular financial transactions.

  1. Interest rates

• Savings account: Everyone knows that the main aim of opening a savings account is for the purpose of money-saving. Generally, people who are in need of money in the future opt for a savings account. So the account holders of savings account earn a high-interest rate compared to the current account holders. The interest is calculated on the deposited funds, and the earned interest is transferred to the holder’s account every quarter or after the ending of half a year.

• Current account:

As we know, the main aim of opening a current account is to support everyday business transactions. It does not aim at the earning of interest rates or increasing the income growth. However, for the benefit of account holders, few banks provide minimal interest rates to a specific amount. If the deposited amount exceeds the specified limit, the bank automatically converts it into a fixed deposit. And as you all know, fixed deposits are opened mainly for interest-earning; the account holder of a current account earns some interest on his deposited amount.

  1. Balance requirements

To enjoy the facilities of almost every banking account, a person is required to maintain a certain minimum balance leaving few like the ones specialized for the non-requirement of a minimum balance.

• Savings account:

The minimum balance requirement varies from bank to bank. Unlike zero balance savings accounts, an account holder is required to maintain a minimum balance in a savings account. The minimum average balance requirement in the metro cities is Rs 10000, Rs 500 for the semi-urban cities, and an amount of Rs 2500 for the people living in urban cities.

• Current account:

The current accounts are opened for business dealings and don't include interest facilities. But, account holders for a current account are required to maintain a minimum balance. In comparison with the savings account, current account holders have to maintain a higher minimum balance.

A similarity in both cases is that the account holder might undergo specific penalties if he cannot or does not maintain the required minimum balance in his account.

  1. Ideal for

Opening any of the two accounts requires making a solid decision. The choice of a particular account depends on the needs and preferences of a person and his ability to bear the expenses and pay the minimum balance requirement of the bank.

• Savings account:

The savings account is ideal for people who want to fulfill their short-term goals. The people who earn steady incomes are suggested to go for a savings account rather than the current account. This account can help a person in fulfilling goals like vacation expenses, buying a car, wedding finances, and a few more.

• Current account:

Opening a current account is ideal for people who run their business enterprises. As you may know, the running of a regular business includes a high amount of transactions on a regular basis. A current account helps the account holder to come up with these daily expenses and helps them run their business smoothly. Ultimately we know that it is ideal for people in business, company owners, business enterprises, organizations, and other large enterprises.

  1. Monthly transactions

Every banking institution poses some monthly transaction limits on its account holders. Daily transactions by the account holders lead to lowering the banks' in-hand money, leading to lowered profits of banks. So to keep their profits intact, they impose these monthly transaction limits.

• Savings account:

Savings accounts have limits on the monthly transactions of the account holders. They are allowed with a monthly transaction of 3 to 5 times for all their needs.

• Current accounts:

Current account holders enjoy the facility of restriction-free monthly transactions. They can incur any amount of withdrawals and infinite times in a month.

Final thoughts

The task of choosing between the two of the above accounts is vital for the best outcome. However, if you want to lower your homework of comparing both accounts, you can use the Money Spring tool. The tool has an inbuilt feature of comparing the schemes, investments, and bank accounts. The experts hired by Money Spring help you compare the above with their pros and cons and provide you early advantages.

However, with the above comparison, we learn that the people with the aim of fulfilling their short-term needs are suggested to open the savings account. The savings account will help them fulfill these needs and work as your financial partner in the future.

People who own business enterprises and want to fulfill their long-term goals are advised to opt for the current account. It will help them conduct their business activities smoothly and help them timely pay for their transactions.

You can choose any of them according to your needs or by taking assistance from the professionals of Money Spring, who help you in taking better financial decisions for future.

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