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5 Major Differences Between Savings Account And Current Account
27 June 2022
A bank account allows you to deposit and withdraw money, make payments, and transfer money to another person or an institution, amongst other things. Bank accounts allow you to build an emergency corpus and store funds for immediate use, and most of them come linked with a debit card which you can use to make payments without having to carry cash physically. If you are confused about choosing between a savings account vs current account, read this blog to weigh the pros and cons of both options to find the best fit for your needs.
What are Savings Accounts?
A savings account is a bank deposit account that earns interest on the money deposited in it and is an excellent choice for keeping cash handy for immediate, short-term needs. Savings accounts also help create an emergency fund or save for monthly goals like rent, school fees, EMIs, etc. Money deposited in a savings account typically earns interest based on the account type.
What are Current Accounts?
A current account is a type of deposit account service provided by banks to individuals or enterprises that plan to conduct a high volume of financial transactions daily apart from unlimited deposits. This account is highly liquid and it is accessed via cheques, ATMs, and electronic debits, among other methods. It allows for simple, everyday transactions; however, it comes with the disadvantage of not being able to earn interest.
Savings Account vs Current Account: Key Differences
Listed below are the key differences between a savings account and a current account:
Designed for people who want to save their money and earn a substantial interest on it.
Facilitates numerous daily business transactions.
The minimum balance requirement for a savings account is lower, in fact zero in many financial instituitions.
A relatively higher minimum balance is required.
Interest rates range from 4% to 8% and differ for each banking institution.
Since current accounts are focused on money flows, no interest is paid on the money held.
A savings account’s monthly transaction volume ranges from 3 to 5 transactions per month.
The number of monthly transactions in a current account is unlimited.
Best suited for salaried people who have a monthly income and want to save money.
Ideal for individuals, business owners, and entrepreneurs who require frequent access to their funds.
Tax Imposed on Savings and Current Accounts
The current account is a zero-interest account with no tax implications. The interest you earn on your savings account is taxable under the heading “Income from other sources.” Section 80TTA of the Income Tax Act states that the interest earned on a savings bank account is tax-free up to Rs.10,000. The excess amount is tax-deductible if the total interest earned from these sources exceeds Rs.10,000.
Choosing Between Savings Accounts vs Current Accounts
Knowing the differences between savings account and current accounts allows you to open an account that best suits your needs and financial goals. If you are looking for an account for your business or startup where you generally make daily transactions and require no limit on withdrawing or depositing funds, you can opt for a current account.
Savings accounts are one of the best ways to save money without carrying cash. You can choose a savings account if you’re looking to save money for emergencies, daily expenses, and other objectives and earn some interest simultaneously. It is the most feasible option for you if you’re a salaried individual who doesn’t have to make regular transactions. This is also the best choice for minors (those under 18 years of age), homemakers, pensioners, or senior citizens. Before choosing one, consider which bank and savings account option will best meet your needs.
One of the most important financial decisions you can make is selecting the type of bank account to manage your money. Most of us start our financial journey by opening a bank account and saving money.
Different types of bank accounts provide varying levels of service and charge varying levels of fees. A good bank account provides easy access to your money and does not charge exorbitant fees. Know the difference between a current account and savings account to make sure what is better for you.
FAQs on Savings Account vs Current Accounts .
Q1. What is the difference between a current account and a savings account?
Ans: Individuals open savings accounts to save money for personal needs or emergencies. A current account, on the other hand, is typically opened by people in business to conduct regular business transactions.
Q2. What is the minimum required balance in current and savings accounts?
Ans:The required minimum balance in current and savings accounts varies for each bank. While some banks offer zero balance savings accounts, the requirement for maintaining a minimum balance in a current account is significantly higher.
Q3. What is the transaction limit in savings and current account?
Ans:There is no withdrawal or deposit limit in the current account, on the other hand in a savings account there is a monthly transaction limit which varies from one bank to another.
Q4. Is there any tax imposed on current or savings accounts?
Ans: The interest you earn on your savings account is taxable under the heading ‘Income from other sources.’ Since tax is imposed on interest earned, no tax is imposed on the current account.
Q5. What is an overdrawing facility?
Ans:Overdrawing allows the user to withdraw an amount over the present balance amount for a short period of time. It is available for current account holders, and does not apply to savings accounts.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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