Wondering if you should open a savings bank account or a current account for your small business? Let us help you understand what these account types are and what account is most suitable for your business type. Here is a complete explanation on Savings account vs Current account.
What is savings bank account?
A savings bank account is pretty much what the word means – a bank account that you can use to save money. Several small scale businesses use a savings account as their primary business account because their earnings and transactions may be limited.
A savings account that can be managed online can even be managed on the go. These online accounts are typically high-yielding because of the higher interest rates. Computers, laptops, and smartphones can all be used to manage the accounts through online.
Although there are some restrictions on how frequently you can withdraw money from a savings account, overall they provide exceptional flexibility that makes them perfect for creating an emergency fund, saving for an immediate need, such as a car or vacation, or simply moving extra money you don’t need into your checking account so it can earn more interest.
Features of savings account:
- Requires you to maintain a minimum balance.
- Offers you an annual interest on the minimum balance that ranges between 4% and 6%.
- A cap on the number of free transactions (about 3-5 in a month).
- Services like a cheque book or deposit are chargeable in a savings bank account. You can only issue 30 free cheques in a year with a Savings bank account.
Documents required to open savings account:
- Proof of Identity (Aadhaar Card, Voter ID, Driving License etc.)
- A recent color photograph.
- Proof of Address (Electricity bill, rental agreement, LPG/Gas bill).
What is current account?
A current account is designed especially for businesses transacting regularly. There are several features that make it a popular alternative for anyone that has more than 10 transactions to make in a month.
Opening a current account in India requires a deposit of between Rs. 5000 and Rs. 25,000. Customers are permitted to withdraw money using checks, although they often do not receive interest. In general, holders of current accounts with banks do not get any interest on the balance in their current accounts.
The overdraft facility offers current account holders one significant benefit.
Features of current account:
- Requires you to maintain a relatively higher minimum balance.
- No interest offered on minimum balance.
- Ensure that personal and commercial banking transactions are separated
- No cap on the number of free transactions.
- Overdraft facility is available. You can withdraw money from the account even if you have zero balance. The bank will treat it as a loan. This is important for working capital for businesses.
- Other banking services like cheque books, deposits etc., are free.
Documents required for opening current account:
Different business types require different documents to open a current account. If you are an individual that wants to open one for business purposes, you will need to furnish:
- Proof of Identity
- Proof of Address
- Recent color photograph
- PAN Form 49/ Form 60 if you have applied for a PAN
- A cheque from an existing savings bank account / current account.
Savings account vs current account:
As an individual small business ( a freelancer or a consultant), a savings bank account may be perfect for you.
However, there can be problems if the number of transactions in your Savings bank account increase. The savings account comes directly under the scanner of the bank’s vigil department and may attract the suspicion of fraud on your account if you are not declaring your income correctly.
If you are an organization or a small business employing at least 4 people, getting a current account is recommended. It is more flexible and offers several services like on-demand statements, pick-up, and delivery of cash etc.
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