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.
Features of a Savings Bank 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 chequebook 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 a Savings Bank Account:
- Proof of Identity (Aadhaar Card, Voter ID, Driving License etc).
- A recent colour photograph.
- Proof of Address (Electricity bill, rental agreement, LPG/Gas bill).
What is a 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.
Features of a Current Account:
- Requires you to maintain a relatively higher minimum balance.
- No interest offered on minimum balance.
- No cap on the number of free transactions.
- Overdraft facility 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 chequebooks, deposits etc., are free.
Documents required for opening a 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 colour 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 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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